The solution of newsvendor problem based on value-at-risk

This paper seeks to describe and explain managers´ newsvendor decisions. These decisions may systematically deviate from profit maximization for several reasons. First, a decision maker may have preferences other than profit maximization. For example, a risk-averse decision maker will systematically order less than the profit maximizing order quantity. Second, a decision maker may apply a heuristic to choose an inventory degree. Under the three new decision making rules, this paper discusses the newsvendor problem and obtains the solution of newsvendor problem for loss averse newsvendor. Finally, comparative static effects of changes in the various price and cost are determined and related to the newsvendor´s loss aversion.