In this paper, the typical anchor (expected value of the outflow or expected loss) used in the most popular decision rule of the stock management modeling, the “Anchoring and Adjustment Rule” is studied for structures including a decaying stock. A new anchor (equilibrium value of loss) is proposed and compared with the expected loss formulation. We demonstrate that equilibrium value of loss formulation helps bringing the control stock to its desired level more rapidly. In addition, we show that managing a decaying stock in a stable way is difficult when the supply line is discrete. Standard stock adjustment and supply line adjustment terms anchored around expected loss can yield highly unstable oscillations. Counter-intuitively, for some cases, ignoring the supply line adjustment term may completely eliminate unwanted oscillations. If equilibrium value of loss is selected as the anchor and when the decay time (life time) is small enough, management of the stock can even be done by ignoring all the adjustment terms.

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Date created

• 2005 July 17-2005 July 21

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• Document

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cc5bb0ac12a5b68b26b1583548898dae

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System Dynamic Society Records

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• This collection is part of the University Archives