The newsvendor problem with unknown distribution

Newsvendor theory assumes that the decision-maker faces a knowndistribution. But in real-life situations, demand distribution is not alwaysknown. In the experimental study which this paper presents, half of theparticipants assuming the newsvendor role were unaware of the underlying demanddistribution, while the other half knew the demand distribution. Participantshad to decide how many papers to order each day (for 100 days). The experimentalfindings indicate that subjects who know the demand distribution behavedifferently to those who do not. However, interestingly enough, knowing thedemand distribution does not necessarily lead the subject closer to the optimalsolution or improve profits. It was found that supply surplus at a certainperiod strongly affects the order quantity towards the following period, despitethe knowledge of the demand distribution.