Risk‐averse decision making in overbooking problem

Traditional literature studying overbooking problems focuses on risk‐neutral decision makers. In this paper, we propose a multi‐period overbooking model incorporating risk‐aversion and extend well‐known structural results (the 3‐region policy) under the risk‐neutral case to the risk‐averse one on the basis of an exponential utility function. We also show that the optimal policy for the risk‐neutral decision maker can be obtained by letting the risk‐aversion parameter approach to zero under the risk‐averse case. Therefore, the extant results under the risk‐neutral case can be interpreted as a special case of ours. We also investigate how the optimal policy changes with some cost parameters and the decision maker's degree of risk‐aversion. Numerical results suggest that the optimal bounds in the 3‐region policy may increase or decrease with the decision maker's degree of risk‐aversion.