How does a retailers order quantity change when his supplier sends products some of which are defective? To answer this question in a concrete context, consider the canonical newsvendor model - demand \(D\) is random and has cdf \(F\left( \cdot \right)\); cost per unit when the firm places orders is …

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Experimental literature that has looked at newsvendor decision-making documents a phenomenon called demand chasing wherein a decision-maker adjusts her order quantity in each period toward the demand realization in past period. This behavior is so obviously “irrational” (given the typical newsvendor setup where each period’s demand is statistically independent …

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