Experimental analysis of decision-making for demand chasing in order behaviors

The traditional newsvendor model assumes that a decision-maker is risk-neutral. However, in actuality, a decisionmaker's order behavior is often influenced by waste-averse preference and stockout-averse preference. We extend the newsvendor model with consideration of averse preferences to investigate how the decision results of the previous period impact the order behavior of the current period, and design an inventory decision-making behavior experiment. Results from the study demonstrate that the order behavior of both a group and an individual exhibits a demand chasing phenomenon, and the former is more significant. Through the interval estimation of the decision maker's order quantity, by the maximum likelihood method we find that the stockout-averse preference has an effect on the decision-making when the prior period is insufficient, causing the current period order quantity larger than the expected profit-maximizing order quantity. In a similar way, waste-averse preference has an effect on decision-making when the prior period is surplus, resulting in the current period order quantity smaller than the expected profit-maximizing order quantity. Finally, we investigate the formation mechanism of demand chasing phenomenon from the perspective of the averse preferences, and propose that this phenomenon is a decision maker's cognitive reaction to stochastic demand environment.