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Characteristics of Commercial Return Products
Published in Subramanian Pazhani, Design and Analysis of Closed-Loop Supply Chain Networks, 2021
Ovchinnikov's (2011) study classifies customers into high-end and low-end. His study states that the consumers use the price of the refurbished product to judge its quality. There is a common belief that a low-end customer or price-sensitive customer is willing to buy refurbished items owing to its lower price. Ovchinnikov (2011) study assumes that the low-end customers are more inclined toward buying refurbished items (if it is available in the market) due to its lower price. However, Guide and Li (2010) had shown empirically that the consumers’ preconceived impressions on the product quality, performance, and durability significantly affects the customer acceptance rate for refurbished products. The consumers will also stay away from refurbished products if he/she had a negative experience with refurbished products in the past. In summary, the objective of a price-sensitive (low-end) customer is to maximize his own utility based on his perceived value on the quality of the refurbished product. This concept is termed as risk aversion, where customers face critical uncertainties and ambiguities concerning product quality (Lee, 2011). Risk aversion is defined as a method to avoid potential future regrets in a natural decision-making process, in a system where decision makers perceive uncertainties and ambiguities. The perceived value with respect to its product quality is characterized using a concave function by Okada (2010).
Contractual practices and collaborative relationships
Published in Johansen Agnar, Nils O. E. Olsson, Jergeas George, Rolstadås Asbjørn, Project Risk and Opportunity Management, 2019
Johansen Agnar, Nils O. E. Olsson, Jergeas George, Rolstadås Asbjørn
Excessive risk aversion in projects can cause severe distrust, which counter-productively increases risk and stifles opportunities. Contracts filled with pages upon pages of excessive legal protections and penalties can actually backfire; they may cause people to protect themselves rather than take actions to advance project performance. Risk premiums added by contractors, as well as legal and litigation costs, are two consequences of excessive risk management that can drain both profits and project team energy. The inherent complexities of a major project are severely exacerbated in distrustful environments. There is great advantage to high-trust over low-trust organizational cultures because trust dramatically improves speed, innovation, forecasting and joint planning, and reduces cost.
Engineering Decision Making
Published in Graeme Dandy, Trevor Daniell, Bernadette Foley, Robert Warner, Planning & Design of Engineering Systems, 2018
Graeme Dandy, Trevor Daniell, Bernadette Foley, Robert Warner
There are many situations where the expected value criterion will not be appropriate and should not be used. In the above example, a loss of $20m, even at a relatively low probability, would be unacceptable because it could lead to bankruptcy of the company. The expected value criterion is not acceptable because the decision maker is averse to risk. Risk aversion usually exists when the stakes are high in comparison with the financial resources that are available to the decision maker.
Risk aversion impacts on need for transparency and traceability pre- and post-pandemic
Published in Supply Chain Forum: An International Journal, 2022
Christina S. Simmers, Rebecca Rast, Allen D. Schaefer, David Hammons
Risk aversion is a personality characteristic that involves an individual’s propensity to avoid risky or ambiguous situations (Kahneman and Tversky 2013; Carter and Bao 2005: Bao, Zhou, and Su 2003). Beyond just avoidance, high-risk-averse individuals feel threatened when in a risky situation (Bao, Zhou, and Su 2003). Risk aversion has been of interest in many domains, such as marketing, psychology, economics, and finance (Carter and Bao 2005). In marketing research, it has been found to impact consumers’ behaviours regarding brand choice and information search (Tellis and Gaeth 1990; Moorthy, Ratchford, and Talukdar 1997; Shimp and Bearden 1982). Here, high-risk-averse individuals will tend to purchase familiar and popular brands and increase their information search when unsure about a product to decrease uncertainty (Bao, Zhou, and Su 2003).
Quality information acquisition and ordering decisions with risk aversion
Published in International Journal of Production Research, 2021
Yang Song, Tijun Fan, Yuewu Tang, Fengli Zou
Risk aversion has been considered in production and operations research in recent years. Risk aversion originates from prospect theory (Kahneman and Tversky 1979) and means that people have different perceived values for equivalent losses and gains and are more averse to losses. Barseghyan et al. (2013) estimate the risk aversion of insurance buyers from a structural model in a B2C setting. Gavirneni and Robinson (2017) construct combinations of a risk-averse utility function and a shortage cost that explain the well-documented anchoring and insufficient adjustment (AIA) bias in newsvendor decision making. Xu, Chan, and Chan (2019) study the optimal option purchase of a loss-averse retailer under emergent replenishment. Smith and Ulu (2017) investigate in the impacts of risk aversion on information acquisition in technology adoption decisions.
Inventory management and the value of quick response to the retailer facing boundedly rational strategic customers
Published in International Journal of Production Research, 2021
Jia Song, Juliang Zhang, T.C.E. Cheng
The existing studies on inventory management considering customers’ behaviour mainly focus on the impacts of customers’ strategic behaviour, risk aversion, and decreasing valuation of the product on the retailer’s inventory and pricing decisions. Risk aversion refers to the degree of psychological acceptance of uncertainty. There are several papers have discussed or provided evidence that strategic customers are risk averse, who are disappointed with failing to obtain the product and afraid of the stock-out risk in the normal selling stage (Liu and van Ryzin 2008; Song et al. 2019). In addition, customers often have high valuations of a product at the product’s launching time and their product valuations gradually decrease over time, especially for fashion products (Wang et al. 2018). For example, an iPhone XR was sold at RMB 6,499 in October 2018 in China and the price went down by 24% after five months. Zhang and Zhang (2017) studied inventory management considering customers’ strategic behaviour and risk preference. Du, Zhang, and Hua (2015) and Wang et al. (2018) considered the impacts of strategic customers’ risk preference and decreasing product valuation on the retailer’s optimal decisions. All these studies assume that the strategic customers are completely rational, i.e. the customers are fully aware of the results of their choices.