Street Vendors tackle the Newsvendor Problem: An Experimental Inquiry into the Big Issue

Abstract

The Big Issue is a not-for-profit organisation that gives homeless people the opportunity to reclaim ownership over their lives by selling a street magazine. The vendors must purchase the magazine from the Big Issue office before making sales, and may do so multiple times each day. The vendors hence face the economic problem of how to construct an order plan given multiple, costly opportunities to replenish. This paper solves the problem theoretically and conducts an experiment with actual Big Issue vendors which tests how their ordering behaviour departs from the optimal solution. The experiment reveals various types of orderers exist, and that some of these systematically perform worse than others. The results also suggest that ordering decisions are heavily influenced by an anchoring heuristic. The experiment ultimately aims to test the effectiveness of a policy recommendation in improving ordering behaviour by setting minimum order quantities and offering vendors a refund for unsold magazines. The effect of the policy is different for each behavioural grouping of vendors. Some vendors demonstrate improved behaviour, while others do not. Based on the results of the experiment, a policy is formulated that will improve the profits of some vendors, without impinging upon the profits of any other behavioural types. This policy is designed so that it is sympathetic to the non-economic goals of the Big Issue.