Article ID: | iaor20101110 |
Volume: | 12 |
Issue: | 1 |
Start Page Number: | 162 |
End Page Number: | 183 |
Publication Date: | Dec 2010 |
Journal: | Manufacturing & Service Operations Management |
Authors: | Zeevi Assaf, Phillips Robert, Besbes Omar |
Keywords: | validation |
The fields of statistics and econometrics have developed powerful methods for testing the validity (specification) of a model based on its fit to underlying data. Unlike statisticians, managers are typically more interested in the performance of a decision rather than the statistical validity of the underlying model. We propose a framework and a statistical test that incorporate decision performance into a measure of statistical validity. Under general conditions on the objective function, asymptotic behavior of our test admits a sharp and simple characterization. We develop our approach in a revenue management setting and apply the test to a data set used to optimize prices for consumer loans. We show that traditional