Field Experiment on the Profit Implications of Merchants’ Discretionary Power to Override Data- Driven Decision-Making Tools

Abstract

Data-driven decision-making (DDD) is rapidly transforming modern operations. The availability of Big Data, advances in data analytics tool, and rapid gains in processing power enable firms to make decisions based on data, rather than intuition. Yet, most firms still allow managers to override decisions from DDD tools, as managers might possess private information not present in the DDD tool. We conduct a field-experiment at an automobile spare-parts retailer to examine the profit implications of providing discretionary power to managers. We find that managers’ overrides significantly reduce the profitability of decisions made by the DDD tool. However, our analysis over a product’s life cycle (PLC) reveals that for growth- (mature- & decline-) stage products, the retail merchants outperform (under-perform) the DDD tool.

Keywords: Data-Driven Decision Making, Algorithm-Centered Decision Making, Managerial Discretion/ Exception, Big-Data, Field Experiment, Private Information, Product Life Cycle