Newsvendor Demand Chasing Revisited

Existing research on newsvendor behavior asserts that individuals engage in demand chasing–adjusting their order quantities towards prior demand. Several metrics have been used to identify this heuristic. By simulation, current metrics are shown to yield excessive false positives, indicating demand chasing when the true order generating process is independent of prior demand. A simple correlation measure does not suffer from this problem and is proposed here as an alternative to some of the more commonly used measures.