A literature review on the anomalies observed in the newsvendor ordering behaviour

Abstract

In a classical newsvendor setting, the retailer places an optimal order quantity by finding a trade-off between overstocking and understocking of products. However, it has been observed that even the experienced managers do not always order an optimal quantity. In the early 2000s, researchers in the area of behavioural economics have taken roots to analyse the behavioural dynamics influencing the inventory ordering decisions in newsvendor settings. Later, a large number of research studies has focused its attention on understanding the cognitive biases and heuristics involved in the process of inventory decisions. The influence of individual heterogeneity such as gender differences, cultural differences, and hierarchical differences on the ordering pattern of individuals are also analysed. This article provides a detailed summary of the research progress in the behavioural newsvendor problem. It also provides a framework of the existing literature and identifies the research gaps to point future research possibilities.