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Multiperiod Inventory Management with Budget Cycles: Rational and Behavioral Decision‐Making
Author(s) -
BeckerPeth Michael,
Hoberg Kai,
ProtopappaSieke Margarita
Publication year - 2020
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/poms.13123
Subject(s) - newsvendor model , inventory management , order (exchange) , economic order quantity , control (management) , operations research , computer science , budget constraint , process (computing) , operations management , economics , microeconomics , business , mathematics , marketing , finance , supply chain , artificial intelligence , operating system
We examine inventory decisions in a multiperiod newsvendor model. In particular, we analyze the impact of budget cycles in a behavioral setting. We derive optimal rational decisions and characterize the behavioral decision‐making process using a short‐sightedness factor. We test the aforementioned effect in a laboratory environment. We find that subjects reduce order‐up‐to levels significantly at the end of the current budget cycle, which results in a cyclic pattern during the budget cycle. This indicates that the subjects are short‐sighted with respect to future budget cycles. To control for inventory that is carried over from one period to the next, we introduce a starting‐inventory factor and find that order‐up‐to levels increase in the starting inventory.