Mathematical modeling for risk averse firm facing loss averse customer's stochastic uncertainty

DOI10.1155/2017/6810415MaRDI QIDQ1993032zbMATH OpenOpenAlexWikidataFDO

Authors Seungbeom Kim, Jinpyo Lee, Minjae Park

Publication date 5 November 2018

Published in Mathematical Problems in Engineering (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.1155/2017/6810415

Mathematics Subject Classification ID

Inventory, storage, reservoirs (90B05) Management decision making, including multiple objectives (90B50) Dynamic programming (90C39) Production theory, theory of the firm (91B38)

Review text

Summary: To optimize the firm's profit during a finite planning horizon, a dynamic programming model is used to make joint pricing and inventory replenishment decision assuming that customers are loss averse and the firm is risk averse. We model the loss averse customer's demand using the multinomial choice model. In this choice model, we consider the acquisition and transition utilities widely used by a mental accounting theory which also incorporate the reference price and actual price. Then, we show that there is an optimal inventory policy which is base-stock policy depending on the accumulated wealth in each period.

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Cites work

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