Do random errors explain newsvendor behavior?

Mirko Kremer, Stefan Minner, Luk N. Van Wassenhove

Research output: Contribution to journalArticlepeer-review

118 Scopus citations

Abstract

Previous experimental work showed that newsvendors tend to order closer to mean demand than prescribed by the normative critical fractile solution. A recently proposed explanation for this mean ordering behavior assumes that the decision maker commits random choice errors, and predicts the mean ordering pattern because there is more room to err toward mean demand than away from it. Do newsvendors exhibit mean ordering simply because they make random errors? We subject this hypothesis to anempirical test that rests onthe fact that the random error explanation is insensitive to context. Our results strongly support the existence of contextsensitive decision strategies that rely directly on (biased) order-to-demand mappings, such as mean demand anchoring, demand chasing, and inventory error minimization.

Original languageEnglish
Pages (from-to)673-681
Number of pages9
JournalManufacturing and Service Operations Management
Volume12
Issue number4
DOIs
StatePublished - Sep 2010
Externally publishedYes

Keywords

  • Heuristics
  • Newsvendor model
  • Random choice
  • Task context

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