Risk-averse pricing decisions based on prospect theory

This study examines the risk behaviour of a decision-maker regarding pricing decisions with aid newsvendor model. In this regard, prospect theory and reference point concept are adopted to formulate value function decision-maker. Unlike traditional points (quantity-based), is deemed price. It proved that convex combination maximum-expected profits expected losses represents point. Closed-form solutions for optimum price quantity orders obtained under uniformly exponentially distributed demand. Moreover, when ordering does not match actual demand discussed. The results-based numerical experiments reveal risk-averse manages increase evade different costs, such as shortages overstocking. Finally, same aversion level, maximum reduction percentage optimal concerning reaches approximately 8% in exponential distribution, whereas it decreases by 30% uniform distribution.