Impact of loss aversion on the newsvendor problem: a literature review and insights for future researchers

The standard newsvendor problem has attempted to determine the ideal ordering quantity considering the trade-off between over-stocking and under-stocking. Behavioral operations management have started to analyse the social and behavioural dynamics involved in the newsvendor problem from the year 2000. Later many researchers have conducted experiments to understand the ordering biases and pricing decisions involved in the area of inventory management. The concept of loss-aversion plays a significant part in the inventory related decisions. This paper presents a detailed examination to understand the influence of loss aversion, prospect theory and reference points on supply chain and related decisions. The systematic review of the existing literature is carried out using the keywords such as newsvendor, loss aversion in inventory management, loss-aversion of newsvendor, experimental studies of inventory management. This review analyses the research progress related to loss aversion and its associated biases on the inventory management problem. This evaluation helps in contributing new insights that will support the researchers and practitioners working in the areas of behavioural economics, experimentation, behavioral operations management, boundedly rational, modelling of newsvendor problem, supply chain practices and contracts. It will also act as a key reference paper to understand the behavioural issues related to the loss-aversion of newsvendor. This paper finds the research gap to highlight on the upcoming research potentials and primacies. This examination confirms the presence of an extensive room for research potential and highlights the specific areas for further research.