We modify the classic single-period inventory management problem by assuming that the newsvendor is expectation-based loss averse according to Koszegi and Rabin (2006, 2007). Expectation-based loss aversion leads to an endogenous psychological cost of leftovers as well as stockouts. If there are...

Laboratory experiments give researchers a great deal of control, making them useful for testing analytical models. In this monograph I discuss methodological issues in designing and conducting laboratory experiments. I also summarize some of the recent advances in using laboratory experiments in...

One striking behavioral phenomenon is the “pull-to-center” bias in the newsvendor game: facing stochastic demand, subjects tend to order quantities between the expected profit maximizing quantity and mean demand. We show that the impulse balance equilibrium, which is based on a simple...

In this paper, we address the question of how the assessment of costs influences decisions in a newsvendor setting. We expect that different cost types lead to different behavior. In our investigation, we consider a newsvendor problem with opportunity costs and a newsvendor problem with penalty...

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,...

We propose a behavioral theory to predict actual ordering behavior in multilocation inventory systems. The theory rests on a well-known stylized fact of human behavior: people's preferences are reference dependent. We incorporate reference dependence into the newsvendor framework by assuming...

Exploring the tension between theory and practice regarding complexity and performance in contract design is especially relevant. The goal of this paper is to understand why simpler contracts may commonly be preferred in practice despite being theoretically suboptimal. We study a two-tier supply...

The observed behavior of customers and managers often does not fit the assumptions of theoretical models used in the operations management (OM) literature. New research in behavioral OM is emerging to bridge the gap between traditional models and these newer observational findings. This work is...

We investigate learning by doing in the newsvendor inventory problem. An earlier study observed that decision makers tend to anchor their orders around average demand and fail to adjust sufficiently toward the expected profit-maximizing order. Principles of behavioral theory suggest some...