Research of Revenue Sharing Contract Based on Prospect Theory

Most of existing revenue sharing contract models are based on expected utility theory which is a pure rational method and assumed that all decision makers are risk-neutral or loss-neutral. The paper develops a revenue sharing contract model based on prospect theory in which decision makers in the supply chain are all loss-averse. The best order quantity of retailer, effects of retailer's loss-aversion to retailer's best order quantity, the supplier's optimal sharing proportion and trade price, and the effects of supplier's loss aversion to supplier's optimal were analyzed. It is extremely important to supply chain management decision makers.