Robust Optimization for the Loss-Averse Newsvendor Problem
Yu, Hui1; Zhai, Jia2; Chen, Guang-Ya3
AbstractIn economics and decision theory, loss aversion refers to people's tendency to strongly prefer avoiding losses to acquiring gains. Many studies have revealed that losses are more powerful, psychologically, than gains. We initially introduce loss aversion into the decision framework of the robust newsvendor model, to provide the theoretical guidance and referential decision for loss-averse decision makers when only the mean and variance of the demand distribution are known. We obtain the explicit expression for the optimal order policy that maximizes the loss-averse newsvendor's worst-case expected utility. We find that the robust optimal order policy for the loss-averse newsvendor is quite different from that for the risk-neutral newsvendor. Furthermore, the impacts of loss aversion level on the robust optimal order quantity and on the traditional optimal order quantity are roughly the same.
KeywordRobust optimization Newsvendor problem Loss aversion
Funding ProjectFundamental Research Funds for the Central Universities of China[CDJSK100211] ; Scientific Research Foundation ; Chongqing University of Technology
WOS Research AreaOperations Research & Management Science ; Mathematics
WOS SubjectOperations Research & Management Science ; Mathematics, Applied
WOS IDWOS:000389232900014
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Document Type期刊论文
Corresponding AuthorChen, Guang-Ya
Affiliation1.Chongqing Univ, Sch Econ & Business Adm, Chongqing 400030, Peoples R China
2.Chongqing Univ Technol, Sch Business Adm, Chongqing 400054, Peoples R China
3.Chinese Acad Sci, Inst Syst Sci, Beijing 100080, Peoples R China
Recommended Citation
GB/T 7714
Yu, Hui,Zhai, Jia,Chen, Guang-Ya. Robust Optimization for the Loss-Averse Newsvendor Problem[J]. JOURNAL OF OPTIMIZATION THEORY AND APPLICATIONS,2016,171(3):1008-1032.
APA Yu, Hui,Zhai, Jia,&Chen, Guang-Ya.(2016).Robust Optimization for the Loss-Averse Newsvendor Problem.JOURNAL OF OPTIMIZATION THEORY AND APPLICATIONS,171(3),1008-1032.
MLA Yu, Hui,et al."Robust Optimization for the Loss-Averse Newsvendor Problem".JOURNAL OF OPTIMIZATION THEORY AND APPLICATIONS 171.3(2016):1008-1032.
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