On the preference to avoid Ex post inventory errors

Mirko Kremer; Stefan Minner; Luk N. Van Wassenhove

doi:10.1111/poms.12071

On the preference to avoid Ex post inventory errors

Mirko Kremer, Stefan Minner, Luk N. Van Wassenhove

Chair of Logistics and Supply Chain Management

Research output: Contribution to journal › Article › peer-review

27 Scopus citations

Abstract

The value of demand information underlies many supply chain strategies that aim at better matching supply and demand. This study reports on the results of a laboratory experiment designed to estimate the behavioral value of demand information. Relative to the commonly assumed benchmark of a rational risk-neutral decision maker, we find that decision makers are consistently willing to pay too much for the option to eliminate the risk of supply not matching demand. Contrary to intuition, we show that risk aversion does not explain this result. We posit that demand information provides behavioral value because it mitigates regret from ex post inventory errors.

Original language	English
Pages (from-to)	773-787
Number of pages	15
Journal	Production and Operations Management
Volume	23
Issue number	5
DOIs	https://doi.org/10.1111/poms.12071
State	Published - May 2014

Keywords

inventory error regret
newsvendor decisions
risk aversion
value of demand information

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1111/poms.12071

Cite this

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On the preference to avoid Ex post inventory errors

Abstract

Keywords

UN SDGs

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