We examine inventory decisions in a multiperiod newsvendor model. In particular, we analyze the impact of budget cycles in a behavioral setting. We derive optimal rational decisions and characterize the behavioral decision-making process using a short-sightedness factor. We test the aforementioned effect in a laboratory environment. We find that subjects reduce order-up-to levels significantly at the end of the current budget cycle, which results in a cyclic pattern during the budget cycle. This indicates that the subjects are short-sighted with respect to future budget cycles. To control for inventory that is carried over from one period to the next, we introduce a starting-inventory factor and find that order-up-to levels increase in the starting inventory.

behavioral operations, budget cycle, inventory management, lab experiments, multiperiod
dx.doi.org/10.1111/poms.13123, hdl.handle.net/1765/121864
Production and Operations Management
Department of Technology and Operations Management

Becker-Peth, M. (Michael), Hoberg, K. (Kai), & Protopappa-Sieke, M. (Margarita). (2019). Multiperiod Inventory Management with Budget Cycles: Rational and Behavioral Decision-Making. Production and Operations Management. doi:10.1111/poms.13123