Newsvendor Problem Experiments: Riskiness of the Decisions and Learning by Experience

Victor Arshavskiy, Vitaliy Okulov, Alena Smirnova

Abstract


We describe the results of three controlled (multi–rounds) experiments in which the players made decisions on purchasing products by fixed price and further selling under demand uncertainty. In our experiments we have introduced the competition; if a player has a lot of product ordered, he could win over buyers away from his competitor. We study the rationality of decisions and the learning by experience. Analysis shows that in each round the average decision of players was more aggressive (risky) than the optimal decision obtained under the assumption that the players maximize the expected profit. But by the end of the experiments the variance of the individual decisions decreased, so the choice of decision was more confident and conscious.


Keywords


Newsvendor Problem, competition, risk, rationality, learning by experience

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DOI: http://dx.doi.org/10.18533/ijbsr.v4i5.500

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