Multiperiod Inventory Management with Budget Cycles: Rational and Behavioral Decision-Making
Michael Becker-Peth, Kai Hoberg, Margarita Protopappa-Sieke
Production and Operations Management · 2020 · Volume 29 · Issue 3
Abstract
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.
Keywords
inventory management, multiperiod, budget cycle, behavioral operations, lab experiments
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