Thompson Sampling for Repeated Newsvendor

Abstract: In this paper, we investigate the performance of Thompson Sampling (TS) for online learning with censored feedback, focusing primarily on the classic repeated newsvendor model--a foundational framework in inventory management--and demonstrating how our techniques can be naturally extended to a broader class of problems. We model demand using a Weibull distribution and initialize TS with a Gamma prior to dynamically adjust order quantities. Our analysis establishes optimal (up to logarithmic factors) frequentist regret bounds for TS without imposing restrictive prior assumptions. More importantly, it yields novel and highly interpretable insights on how TS addresses the exploration-exploitation trade-off in the repeated newsvendor setting. Specifically, our results show that when past order quantities are sufficiently large to overcome censoring, TS accurately estimates the unknown demand parameters, leading to near-optimal ordering decisions. Conversely, when past orders are relatively small, TS automatically increases future order quantities to gather additional demand information. Extensive numerical simulations further demonstrate that TS outperforms more conservative and widely-used approaches such as online convex optimization, upper confidence bounds, and myopic Bayesian dynamic programming. This study also lays the foundation for exploring general online learning problems with censored feedback.