Abstract:

Based on the newsvendor setting, many behavioral models are proposed to predict the biases of decision makers in inventory management. Recently, Nagarajan and Shechter (Manag Sci 60:1057–1062, 2014) claimed that prospect theory cannot explain the consistent empirical findings. However, it is noticed that their model is a special case of the general prospect theory model. In this note, we showthat the general prospect theory model may be powerful in predicting the preferences of decision makers in inventory management.