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Mathematical Problems in Engineering
Volume 2017 (2017), Article ID 6810415, 9 pages
Research Article

Mathematical Modeling for Risk Averse Firm Facing Loss Averse Customer’s Stochastic Uncertainty

College of Business Administration, Hongik University, Seoul, Republic of Korea

Correspondence should be addressed to Jinpyo Lee;

Received 24 January 2017; Revised 18 March 2017; Accepted 26 March 2017; Published 11 April 2017

Academic Editor: Huanqing Wang

Copyright © 2017 Seungbeom Kim et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


To optimize the firm’s profit during a finite planning horizon, a dynamic programming model is used to make joint pricing and inventory replenishment decision assuming that customers are loss averse and the firm is risk averse. We model the loss averse customer’s demand using the multinomial choice model. In this choice model, we consider the acquisition and transition utilities widely used by a mental accounting theory which also incorporate the reference price and actual price. Then, we show that there is an optimal inventory policy which is base-stock policy depending on the accumulated wealth in each period.