Research On Newsvendor's Order Decision Under Narrow Framing

The narrow framing usually affects enterprises' decisions in the following two operational decision-making situations.Firstly,when making order decisions with uncertain demand,enterprises ignore the possibility of the same uncertain demand in the future and make the decisions inconsistent with the maximized expected utility.Secondly,when making multi-period order decisions with uncertain demand,enterprises fail to consider multi-period decisions in the same psychological account,instead,they make order decisions separately because of the narrow framing.In previous researches,the narrow framing is considered to be always detrimental to enterprises because it makes decision makers make different decisions in different psychological accounts,failing to treat the effects of different decisions equally.This paper analyzes the influence of the narrow framing on newsvendor's order decision by measuring the decision-making deviation induced by behavioral factors through psychological reference points,and divides the influence of narrow framing on Newsvendor into two kinds of phenomena.Making order decisions under single-period market,the newsvendor affected by the narrow framing fails to consider the possibility of facing the same market in the future,and makes a decision inconsistent with the maximized expected utility due to the individual's short-sighted loss aversion behavior.As for this phenomenon,this paper explores newsvendor 's order decision influenced by narrow framing under single-period market with two-point distribution.It is found that influenced by loss aversion and psychological reference point,newsvendor is unable to make the profit-maximizing order decision due to excessive attention to the current profits and losses in narrow framing.However,stronger narrow framing doesn't always mean more deviations of order decisions.Instead,the stronger the narrow framing effect,the more favorable it is to reduce the order decision deviation when the newsvendor's psychological reference point is in certain scope.newsvendor affected by narrow framing still tends to consider the order decision in the single-period market when making multi-period order decisions,unable to consider the profits and losses of the multi-period market under the same psychological account overall,resulting in the deviation of order behavior.This paper constructs a two-period market with two-point distribution,where the demand between the two periods is correlated,to investigate the influence of narrow framing on newsvendor 's order decisions.It is found that the stronger the correlation between the market demands is,the impact of stronger narrow framing will enable the newsvendor to consider the correlation between one market and the other separately,instead of regarding multiple markets as a whole,which weakens the correlation between markets.In this setting,it is likely that stronger narrow framing is more beneficial to the newsvendor.In summary,narrow framing is not always harmful to the newsvendor.So it is important that enterprises correctly decide whether to restrain narrow framing or enforce this"defect"thinking to help them improve the quality of decision-making depending on specific market situations.This paper provides some managerial insights for managers on how to take advantage of the narrow framing to improve decision quality.