The Expectation-Based Loss-Averse Newsvendor

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Herweg, Fabian:
The Expectation-Based Loss-Averse Newsvendor.
In: Economics Letters. Bd. 120 (2013) Heft 3 . - S. 429-432.
ISSN 0165-1765
DOI: https://doi.org/10.1016/j.econlet.2013.05.035

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Abstract

We modify the classic single-period inventory management problem by assuming that the newsvendor is expectation-based loss averse according to Kőszegi and Rabin (2006, 2007). We show that the expectation-based loss-averse newsvendor orders less than the profit-maximizing quantity. Moreover, the order placed by the expectation-based loss-averse newsvendor features plausible comparative statics of cost and price changes.