EMSR versus EMSU: Revenue or utility?

EMSR versus EMSU: Revenue or utility?

An assumption of risk-neutrality lies at the heart of the standard algorithm for leg inventory optimisation (EMSR). This paper examines how to modify EMSR scientifically to account for different risk preferences (eg risk aversion). This new approach is called expected marginal seat utility (EMSU). A...

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Veröffentlicht in:Journal of revenue and pricing management 2004-10, Vol.3 (3), p.277
1. Verfasser: Weatherford, Larry R
Format: Artikel
Sprache:eng
Schlagworte:
Air fares
Air travel
Airline industry
Airline scheduling
Airlines
Computer simulation
Decision making
Expected utility
Heuristic
Inventory control
Preferences
Revenue
Revenue management
Risk aversion
Simulation
Studies
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Zusammenfassung:An assumption of risk-neutrality lies at the heart of the standard algorithm for leg inventory optimisation (EMSR). This paper examines how to modify EMSR scientifically to account for different risk preferences (eg risk aversion). This new approach is called expected marginal seat utility (EMSU). A comparison is made between the differences in booking limits that are generated by the different risk preferences. Simulation analysis is used to show what the differences in expected revenues and expected utilities are between the two methods. The results show that switching to EMSU in cases of risk aversion can increase expected utility by 1.6-4 per cent. [PUBLICATION ABSTRACT]
ISSN:1476-6930
1477-657X