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Statistical testing of bounded rationality with applications to the newsvendor model

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  • Ubøe, Jan
  • Andersson, Jonas
  • Jörnsten, Kurt
  • Lillestøl, Jostein
  • Sandal, Leif

Abstract

In this paper we define bounded rationality in terms of probabilistic cost efficiency. This establishes a framework where bounded rationality can be examined rigorously by statistical methods. We apply this theory to data from laboratory experiments on the newsvendor model. We enter into a theoretical discussion of the classical pull-to-center effect and explain why underorders are typically larger than overorders.

Suggested Citation

  • Ubøe, Jan & Andersson, Jonas & Jörnsten, Kurt & Lillestøl, Jostein & Sandal, Leif, 2017. "Statistical testing of bounded rationality with applications to the newsvendor model," European Journal of Operational Research, Elsevier, vol. 259(1), pages 251-261.
    • Handle: RePEc:eee:ejores:v:259:y:2017:i:1:p:251-261
    DOI: 10.1016/j.ejor.2016.10.007
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    References listed on IDEAS

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    Cited by:

    1. Tsionas, Mike G., 2020. "Bounded rationality and thick frontiers in stochastic frontier analysis," European Journal of Operational Research, Elsevier, vol. 284(2), pages 762-768.
    2. Tsionas, Mike G., 2023. "Bayesian learning in performance. Is there any?," European Journal of Operational Research, Elsevier, vol. 311(1), pages 263-282.
    3. Andersson, Jonas & Jörnsten, Kurt & Lillestøl, Jostein & Ubøe, Jan, 2019. "Analyzing learning effects in the newsvendor model by probabilistic methods," Discussion Papers 2019/13, Norwegian School of Economics, Department of Business and Management Science.

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