Research On Newsvendor Model Considering Decision-maker’s Behavior

Newsvendor problem is one of the important research topics in operations management, and it’s also a typical example of ordering problem under stochastic demand. Newsvendor problem has drawn so much attention of scholars, and has been extended to a number of aspects. The classical newsvendor model applies the Expected Utility Theory to decide the optimal order to maximize profit. But a large number of studies have shown that the results of classical newsvendor model don’t align with the actual decision-making of the decision makers. Then, a lot of researches began to consider the decision maker’s psychological cognitive and behavioral factors, and gained some valuable results. However, the consideration of behavioral factors in newsvendor problem is still limited; most of the researches are using mathematical modeling method to include the risk attitude or loss aversion in the model.Regret theory is a very important behavioral decision theory, which has lots of new development recently. It has been applied to many research areas. Regret emotion can affect the decision of the decision-maker, but few studies consider decision-makers’regret. Therefore, study about decision-makers’ regret in newsvendor problem has important theoretical value; and meanwhile, considering regret in newsvendor problem will be more realistic. This research can be widely used in the production and ordering decisions, services, clothing industry and some other businesses, which makes it has significant practical value.This paper first analyses and summarizes the classical and the extensions of the newsvendor problem, also studies regret theory and its extensional research. This paper studies the newsvendor problem considering the decision-makers’ regret. The purpose and significance of the research are as follows: in the theory and method research aspect, to enrich the studies of the newsvendor problem considering decision-makers’ behavior and propose new results for the behavioral operations management; in the practical research aspect, the paper proposes a specific example, and also provides guidance for the model application in practice.This paper completes the following aspects:(1) Develop a newsvendor model considering decision-makers’regret emotion, and gave the specific solution. This paper considers a newsvendor facing an ordering problem under stochastic demand. With the application of regret theory this paper develops a model considering decision-makers’regret and also analyses the affection that regret emotion has on decisions. Besides, this paper uses the model to solve a practical example, which verified the impact of regret on decisions.(2) Develop a newsvendor pricing model with the consideration of regret emotion of decision-makers’, and give the solution. This paper studies a newsvendor problem with the price (price dependant demand). This presents a linear function of between price and demand, so the newsvendor problem is transformed to determine price and ordering quantity to maximize the expected utility. In this paper, a mathematical modeling method is used to develop the model, and the corresponding solution is presented. And practical examples were presented which verified the impact of regret on decision-making, and illustrated the important practical significance.Finally, this paper summarized the main findings and conclusions, limitations of the study and the research for future study.