Retailer’s Order Problem With Anchoring Psychology

Inventory management has always been thought to be an important branch of management science.The inventory will affect the cash flow and the profitable ability of enterprises,so companies are increasingly concerned about the management of inventory,and even some companies put forward the concept of zero inventory.With the development of society and technology,more and more products have characteristics of short life cycle,fast updating,and large fluctuation of customer demand.These attributes bring some challenges to retailers’ inventory management.The newsvendor model is used to study the order quantity problem of single-cycle products.The newsvendor model assumes that the product has the characteristics of single period and demand uncertainty,which is similar to the characteristics of some real products in the market.So newsvendor model becomes more and more popular and lots of researchers begin to study the newsvendor model.The traditional newsvendor model is based on the Expected Utility Theory,which assumes that the retailer is the total rational people.However,there is no rational people in the real environment,so some researchers have studied the impact of irrational behavior on the inventory management,such as risk preference,loss aversion and overconfidence.Although these studies can be better for the newsboy model,but still lacks more systematic and scientific research.The anchoring psychology is introduced to study the retailer’s behavior in ordering problem based on the rational man hypotheses of decision maker in newsvendor problem.A new mathematical order model considering the anchoring and insufficient adjustment bias of retailer is proposed.The result shows that when the retailer is impacted by anchoring,retailer’s choice systematically deviates from the theoretically optimum value in both low-profit/high profit scene,and the pull-to-center phenomenon is proved,too.The influence of anchoring psychology on retailer’s profit is investigated.The analysis shows that retailer’s profit is negatively correlated with anchoring psychology.The sensitivity analysis indicates that the level of anchoring has a major impact on order quantity and profit.The rationality of considering anchoring psychology in newsvendor problem is demonstrated.