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Publications
  • April 2024
  • Article
  • Strategic Management Journal

Decision Authority and the Returns to Algorithms

By: Hyunjin Kim, Edward L. Glaeser, Andrew Hillis, Scott Duke Kominers and Michael Luca
  • Format:Print
  • | Pages:30
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Abstract

We evaluate a pilot in an Inspections Department to explore the returns to a pair of algorithms that varied in their sophistication. We find that both algorithms provided substantial prediction gains, suggesting that even simple data may be helpful. However, these gains did not result in improved decisions. Inspectors often used their decision authority to override algorithmic recommendations, partly to consider other organizational objectives without improving outcomes. Interviews with 55 departments find that while some ran pilots seeking to prioritize inspections using data, all provided considerable decision authority to inspectors. These findings suggest that for algorithms to improve managerial decisions, organizations must consider both the returns to algorithms in the context and how decision authority is managed.

Keywords

Algorithmic Aversion; Algorithmic Decision Making; Algorithms; Public Entrepreneurship; Govenment; Local Government; Crowdsourcing; Crowdsourcing Contests; Inspection; Principal-agent Theory; Government Administration; Decision Making; Public Administration Industry; United States

Citation

Kim, Hyunjin, Edward L. Glaeser, Andrew Hillis, Scott Duke Kominers, and Michael Luca. "Decision Authority and the Returns to Algorithms." Strategic Management Journal 45, no. 4 (April 2024): 619–648.
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About The Author

Scott Duke Kominers

Entrepreneurial Management
→More Publications

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More from the Authors
  • Collusion in Brokered Markets By: John William Hatfield, Scott Duke Kominers and Richard Lowery
  • Workplace Segregation Between College and Non-college Workers By: Francis Dillon, Edward L. Glaeser and William Kerr
  • Harvard Students Should Ignore Calls to Boycott Israel Trek By: Jesse M. Fried, Paul A. Gompers, Scott Kominers and Mark C. Poznansky
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