In the real world, the retailer usually focuses on the difference between the real profit and the expectation of the profit in the joint pricing and order decision, and usually perceives disappointment caused by the negative difference between the real profit and the expectation of the profit of the retailer and elation caused by the positive difference between the real profit and the expectation of the profit of the retailer. Some experiments on the psychological behavior analysis in operation management decision show that the retailer is usually averse to the disappointment and seeking to the elation, i.e., the retailer usually exhibits the disappointment aversion and elation seeking. However, the study on joint pricing and order decision considering the retailer's disappointment aversion and elation seeking is still lacking, and the existing studies considering other psychological behaviors such as reference dependence, loss aversion, bounded rationality, decision bias, fairness concern (inequity aversion), overconfidence and mental accounting, cannot be used to solve the joint pricing and order decision problem with the consideration of the disappointment aversion and elation seeking. Hence, it is necessary and significant to study the joint pricing and order decision under the consideration of the disappointment aversion and elation seeking of the retailer. In this paper, first, the expectation of the profit of the retailer is regarded as the reference point which is theoretically between the theoretical minimum of the profit and the maximum of the profit, specially, if the theoretical minimum of the profit is regarded as the reference point, the retailer will not perceive disappointment, if the theoretical maximum of the profit is regarded as the reference point, the retailer will not perceive the elation. Since the reference point of the retailer is usually not lower than 0, the reference point of the retailer is considered to be between 0 and theoretical maximum of the profit. To depict the disappointment aversion and elation seeking, a disappointment-elation utility function is given and illustrated according to the disappointment theory which is proposed by Bell (1985). On the basis of this, a utility function of joint pricing and order decision considering the retailer's disappointment aversion and elation seeking is built by integrating the utility of the real profit and utility (psychological satisfaction) of the disappointment aversion and elation seeking. Then, to maximize the retailer's expected utility, the constructed utility model is analyzed and solved, and the optimal price and order quantity of the retailer are determined through the analysis of the utility function. Furthermore, a numerical example is provided to illustrate the rationality and validity of the study. In the example, the retailer is divided into three types:The retailer with low-expectation of the profit, the retailer with medium-expectation of the profit and the retailer with high-expectation of the profit, and the impacts of the degree of the disappointment aversion and the degree of the elation seeking on the optimal price and order quantity for three types of retailers are analyzed. The results show that the retailer's expectation of the profit, the degree of the disappointment aversion and the degree of the elation seeking will affect joint pricing and order decision of the retailer, and under the consideration of the heterogeneity of the retailers with different expectation of the profit, the impacts of the degree of the disappointment aversion and the degree of the elation seeking on the optimal price and order quantity presents the variation trend. In this study, the scope and content of the operations management problem under the consideration of the psychological behaviors are enriched, and the lesson and guidance for the related study on the behavioral operation problem are provided; the foundation for the further study on this problem is also layed.
CAO Bing-bing, FAN Zhi-ping, ZHANG Hu-wei
. Joint Pricing and Order Decision Considering Disappointment Aversion and Elation Seeking of the Retailer[J]. Chinese Journal of Management Science, 2016
, 24(7)
: 82
-91
.
DOI: 10.16381/j.cnki.issn1003-207x.2016.07.010
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