Social Comparison in Newsvendor

Abstract

In the most basic newsvendor problem the decision maker faces stochastic demand in which they have to choose an order quantity for an unknown demand. In such as problem, the decision maker has to make a trade-off between ordering too much and too little. Newsvendor experiments often found that participants do not make optimal decisions. Generally, their decisions are skewed towards the mean demand, this bias is called pull-to-centre. The motivation/s behind such behaviour are still not well known and it cannot be explained by various known decision biases such as, but not limited to, Prospect Theory (and risk preferences), waste aversion, stock out aversion etc. therefore it is still of great interest to social scientist. This thesis focus on using social comparison to provide possible explanations to some of the interesting result obtained from various newsvendor experiments, such as, pull-to-centre. This thesis had made contributions by developing models and providing experimental evidence of social comparison and its effects on newsvendor's behaviour.