OM forum - Causal inference models in operations management

Abstract

Operations management (OM) researchers have traditionally focused on developing normative mathematical models that prescribe what managers and firms should do. Recently, there has been increased interest in understanding what managers and firms actually do and the factors that drive these decisions. To advance this understanding, empirical investigation using causal inference models is critical. However, in many contexts, the ability to obtain causal inferences is fraught with the challenges of endogeneity and selection bias. This paper describes five empirical tools that have been widely used in economics to address these challenges and how they can be adopted by OM researchers. We also present an example that illustrates how the various attributes of big data—variety, velocity, and volume—can be useful in addressing the endogeneity bias.