A Review of Behavioral Decision Making in the Newsvendor Problem

Abhishek Sharma
Indian Institute of Management Rohtak, Haryana, India

Shirsendu Nandi
Indian Institute of Management Rohtak, Haryana, India

Schweitzer and Cachon (2000) demonstrated that choices of decision-maker in the newsvendor problem setting systematically deviate from those that maximize their expected profit. Since then, a large body of empirical and theoretical studies has been published to describe the newsvendor decision-making behavior. To establish further, the purpose of this paper is twofold. First, it identifies the various behavioral theories and biases that explain the newsvendor behavior by employing a systematic literature review of peer-reviewed articles published in leading journals from 2000 to 2017. Second, it classifies and analyzes the identified literature from three dimensions of human behavior namely: individual decision making biases, social preferences, and cultural aspects. Our findings from the review show that research has primarily emphasized individual decision making biases while social and cultural aspects lack analysis and are worthy of investigation. Finally, we discuss some directions for future research, followed by the conclusion and limitations of this review.

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This paper has been downloaded 159 times since published. The persistent DOI of this paper is DOI:10.31387/oscm0350214.