Vol. 56, No . 14, November 2010, pp. 1891–1910
issn 0025-1909 eissn 1526-5501 10 5611 1891
doi 10. 1287/mnsc. 1100. 1225
© 2010 NOTIFIES
Reference Dependence in Multilocation Newsvendor
Models: A Structural Analysis
Haas School of Business, School of California, Berkeley, Berkeley, California 94720, [email protected] berkeley. edu
Wisconsin School of Business, College or university of Wisconsin–Madison, Madison, Wisconsin 53706, [email protected] wisc. edu
Tony Haitao Cui
Carlson School of Management, School of Minnesota, Minneapolis, Mn 55455, [email protected] edu
e suggest a behavioral theory to predict genuine ordering tendencies in multilocation inventory devices. The theory rests on a well-known special fact of human tendencies: people's preferences are reference point dependent. All of us incorporate guide dependence in the newsvendor framework by assuming that there are mental costs of leftovers and stockouts. All of us also hypothesize that the internal aversion to leftovers is usually greater than the disutility to get stockouts. All of us then experimentally test the proposed theory in the centralized and decentralized products on hand structures applying subjects determined by considerable ﬁnancial incentives. Consistent with the recommended theory, real orders exhibit the alleged " pull-to-center” bias and the degree of tendency is greater in the high-proﬁt margin as compared to the low-proﬁt margin condition. These organized biases are shown to eliminate the risk-pooling beneﬁt when the needs across retail store locations will be strongly related. Because the proposed model nests the standard products on hand and former mate post inventory error minimization theories since special cases, one can methodically evaluate the predictive power of each alternative making use of the generalized probability principle. We all structurally calculate all three ideas using the trial and error data, plus the estimation effects strongly claim that the recommended behavioral theory captures genuine orders and proﬁts better. We also conduct two experiments to validate the behavioral style by manipulating the family member salience from the psychological costs of left over spots versus those of stockouts to alleviate the pull-to-center bias. Key words: multilocation products on hand system; newsvendor; behavioral businesses management; fresh economics
History: Received February 6, 2009; accepted Summer 12, 2010, by Martin Lariviere, businesses management. Posted online in Articles before hand October 11, 2010.
In the event that managers happen to be in charge of multiple store spots,
as is necessary in practice, then their buying decisions are actually more complex. In the multilocation placing, they not simply have to take into account multiple shop demands that will be correlated, yet also consider the question of whether to centralize the inventory structure. Standard products on hand theory prescribes a central inventory framework over a decentralized
one given that demands over the locations aren't
perfectly related. This is due to the beneﬁt of risk
pooling (Eppen 1979). Nevertheless , the ability of any ﬁrm
to totally realize this kind of beneﬁt will not be empirically
veriﬁed. Moreover, the normal analysis that generates the risk-pooling beneﬁt assumes that managers whom make the purchasing decisions will be perfectly logical
and will certainly not exhibit systematic biases. As i have said
above, this kind of perfect rationality assumption continues to be
challenged simply by recent scientific ﬁndings that ordering decisions are biased in the setting of a singlestore newsvendor trouble. Given these kinds of ﬁndings, one would expect that orders in the multistore establishing
One of the most stunning empirical ﬁndings in businesses management studies that decision creators appear to include great difﬁculty arriving at the optimal order recommended by regular inventory theory, even inside the simplest setting of a single-store newsvendor. This kind of ﬁnding was ﬁrst reported by Schweitzer and Cachon (2000), who applied...
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