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The sophisticated decision maker: All work and no pay?

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  • Horowitz, I.
  • Thompson, P.

Abstract

We consider the effect on profitability of using increasingly sophisticated regression-based methods of estimating and interpreting the parameters of the demand curve facing the neoclassical firm that newly enters an existing product market. Through simulation it is shown that in this particular setting the differences in the firm's subsequent profit performance over the range of the different methods are de minimus. The demands these methods make upon the decision maker, however, differ substantially. These results prompt us to question whether comparable results in alternative real-world settings might not be more pervasive than we as theoreticians would like to believe is the case. We speculate that all too often the profit payoff from the use of even-more-sophisticated decision-making techniques will fail to justify the required effort. And, further, that even managers who are well versed in sophisticated decision-making procedures are not unlikely to find their talents stretched to the lmit well before they reach the point of diminishing returns.

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  • Horowitz, I. & Thompson, P., 1995. "The sophisticated decision maker: All work and no pay?," Omega, Elsevier, vol. 23(1), pages 1-11, February.
    • Handle: RePEc:eee:jomega:v:23:y:1995:i:1:p:1-11
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    1. Horowitz, Ira, 2000. "Constrained service reliability under stochastic demand," Omega, Elsevier, vol. 28(3), pages 361-369, June.

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