Probabilistic cost efficiency and bounded rationality in the newsvendor model
Working paper
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http://hdl.handle.net/11250/227756Utgivelsesdato
2014-12Metadata
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Sammendrag
In this paper we establish a link between probabilistic cost efficiency and bounded rationality
in the newsvendor model. This establishes a framework where bounded rationality
can be examined rigorously by statistical methods. The paper offers a relatively deep theoretical
analysis of underorders/overorders in the newsvendor model. The theory is supported
by empirical findings from our analysis of empirical data from laboratory experiments. In
particular, we observe that underorders are systematically larger than overorders, an issue
that our theoretical model explains. From statistical tests we conclude that all variability in
our data can be explained by probabilistic cost efficiency and risk aversion.