Impacts of Hyperbolic Discounting on Inventory Replenishment Policy Under Inflation

Considering time inconsistency and inter-temporal preference of the decision maker who is facing inter-temporal choices, this paper employs hyperbolic discounting to reflect these characteristics in governing inventory replenishment policy under inflation. The authors take the subjective perception of the decision maker and the objective indicator from the capital market into consideration. The decision maker’s subjective perception includes confidence towards future value of money and anxiety to return the money, while the objective indicator is represented by the compounded discount rate. The results suggest that over the given planning horizon, with more confidence, inventory policy of larger order quantity and smaller order frequency should be adopted; with more anxiety within a threshold, inventory policy of smaller order quantity and larger order frequency should be adopted, and with more anxiety beyond this threshold, inventory policy keeps unchanged; with a larger discount rate, inventory policy of smaller order quantity and larger order frequency should be adopted.