A Study On The Supply Chain Network Equilibrium Of Retailers With Loss Probability Aversion And Loss Aversion

In 2002, Nagurney starts the supply chain network equilibrium. This research has made an important role in operation and management for the enterprise, and has become the focus of management. However, these studies are based on the expected utility theory for the network members are completely rational.A large number of facts show that there are many bounded rationality behaviors when people face risk. Such as certainty and possibility effecct, probability sensitivity effect and loss aversion. A large number of facts prove that as a description of rational behavior, expected utility theory can not be used to describe and illustrate the limited rational behaviors in reality.Therefore, this paper based on prospect theory, established supply chain network equilibrium model with retailiers’ behavior being probabilistic loss aversion and loss aversion. Then analysis the effects of retailer’s degree of attention to the maximum profit and maximum loss, the degree of susceptibility to the change of profit probability and loss probability and the degree of loss aversion to their own order decisions, manufacturers supply decisions and the entire supply chain network equilibrium.The results of this paper show that the prospect theory can explain the retailers’ decision-making behavior very well. The retailers’ equilibrium quantities decrease as the degree of attention to the worst increase; the retailers’ equilibrium quantities increase as the degree of attention to the best increase; the retailers’ equilibrium quantities decrease as the degree of likelihood sensitivity to loss increase; the retailers’ equilibrium quantities decrease as the degree of loss aversion increase.