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<p>Although risk-averse consumers have been hot research, the study of the newsvendor’s risk aversion is limited. We explore the effects of risk aversion on the order quantity in the newsvendor problem, where there is a shortage penalty for unsatisfied demand and a general demand distribution in the expected utility theory framework. Unlike the results in the existing studies that the optimal order quantity decreases with risk aversion, we find that a more risk-averse newsvendor may order more than a less risk-averse one, depending on the salvage value and the shortage penalty. The results show that the order quantity increases with risk aversion when the salvage value is small or the shortage penalty is large. Meanwhile, the salvage value and the shortage penalty have opposite effects on the order quantity for the risk-averse newsvendor.</p>

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Does risk aversion decrease the order quantity?

  • 期刊论文

  • 发表日期：

    2025年6月23日

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  • Yuge Bai,
  • Mengdi Gu

摘要

Although risk-averse consumers have been hot research, the study of the newsvendor’s risk aversion is limited. We explore the effects of risk aversion on the order quantity in the newsvendor problem, where there is a shortage penalty for unsatisfied demand and a general demand distribution in the expected utility theory framework. Unlike the results in the existing studies that the optimal order quantity decreases with risk aversion, we find that a more risk-averse newsvendor may order more than a less risk-averse one, depending on the salvage value and the shortage penalty. The results show that the order quantity increases with risk aversion when the salvage value is small or the shortage penalty is large. Meanwhile, the salvage value and the shortage penalty have opposite effects on the order quantity for the risk-averse newsvendor.