This paper examines a single-period inventory problem with random capacity and demand, where the loss-averse preference is adopted to describe the newsvendor’s decision-making behavior. When the loss-averse newsvendor orders, the supplier has some random replenishment capacity. He will choose an order quantity to maximize his expected utility. The newsvendor’s optimal ordering policy is obtaine...

We address the problem of hedging inventory risk for a short lifecycle or seasonal item when its demand is correlated with the price of a financial asset. We show how to construct optimal hedging transactions that minimize the variance of profit and increase the expected utility for a risk-averse decision-maker. We show that for a wide range of hedging strategies and utility functions, a risk-a...

We model a risk-averse newsvendor’s decision-making behavior with some commonly used classes of utility functions within the expected utility theory (EUT) framework. Under fairly general conditions of EUT, we show that a risk-averse newsvendor will order less than an arbitrarily small quantity as selling price gets larger if price is higher than a threshold value, i.e., the optimal order quanti...

In this paper we study asymptotic consistency of law invariant convex risk measures and the corresponding risk averse stochastic programming problems for independent identically distributed data. Under mild regularity conditions we prove a Law of Large Numbers and epiconvergence of the corresponding statistical estimators. This can be applied in a straightforward way to establishing convergence...

The Relationship between Unemployment and Risk-Aversion In this paper we use a direct measure of individual risk-aversion to examine the relationship between risk-aversion and unemployment. The traditional search model predicts that more risk-averse individuals have lower reservation wages and thus are less likely to be observed in unemployment. Our findings, however, do not support this predic...

In the era of Industry 4.0, firms are facing with greater uncertainty. Accordingly, it is important to select quality risk measures to analyze newsvendor problems under risk. Then, open innovation can be a good remedial option for such risk-averse newsvendors because open innovation can offset the profit losses from risk aversion by sharing revenues in supply chains. To find such risk measures ...

This paper suggests that the evolutionarily optimal belief of an agent’s intrinsic reproductive ability is systematically different from the posterior belief obtained by the perfect Bayesian updating. In particular, the optimal belief depends on how risk-averse the agent is. Although the perfect Bayesian updating remains evolutionarily optimal for a risk-neutral agent, it is not for any other. ...

In the framework of expected utility theory, risk attitudes are entirely captured by the curvature of the utility function. In cumulative prospect theory (CPT) risk attitudes have an additional dimension: the weighting of probabilities. With this modification, one question arises naturally: since both utility and probability weighting determine the attitude towards risk, what is the relation be...

In financial economics in general the objective function expresses the risk preferences of the decision maker, see for example the mean variance approach in portfolio theory. Only recently in inventory management instead of maximizing expected profit or minimizing expected cost risk-averse objective functions have been used for determining the optimal order quantity. Examples are the exponentia...