A Decision Procedure for the Transition from Uncertainty to Risk in a Single-Period Inventory Problem.

Minimum expected-cost solutions to the single-period inventory problem (the Newsboy problem) have been well known for many years, for risk cases where the distribution of demand is known. Also well known are minimax cost and Laplace solutions for the uncertainty case where only the range of demand is known. This study explores the use of order-statistic-based quantile estimators as decision procedures while data gathers during the early decision periods. Simulation, using a variety of demand distributions and unit-cost values, provides recommendations on which period to leave the minimax procedure for a suggested data-based decision rule which will be asymtotic to the optimal risk procedure. (Author)