Essays in Empirical Operations Management: Bayesian Learning of Service Quality and Structural Estimation of Complementary Product Pricing and Inventory Management

This dissertation contributes to the rapidly growing empirical research area in the field of operations management. It contains two essays, tackling two different sets of operations management questions which are motivated by and built on field data sets from two very different industries --- air cargo logistics and retailing.

The first essay, based on the data set obtained from a world leading third-party logistics company, develops a novel and general Bayesian hierarchical learning framework for estimating customers' spillover learning, that is, customers' learning about the quality of a service (or product) from their previous experiences with similar yet not identical services. We then apply our model to the data set to study how customers' experiences from shipping on a particular route affect their future decisions about shipping not only on that route, but also on other routes serviced by the same logistics company. We find that customers indeed borrow experiences from similar but different services to update their quality beliefs that determine future purchase decisions. Also, service quality beliefs have a significant impact on their future purchasing decisions. Moreover, customers are risk averse; they are averse to not only experience variability but also belief uncertainty (i.e., customer's uncertainty about their beliefs). Finally, belief uncertainty affects customers' utilities more compared to experience variability.

The second essay is based on a data set obtained from a large Chinese supermarket chain, which contains sales as well as both wholesale and retail prices of un-packaged perishable vegetables. Recognizing the special characteristics of this particularly product category, we develop a structural estimation model in a discrete-continuous choice model framework. Building on this framework, we then study an optimization model for joint pricing and inventory management strategies of multiple products, which aims at improving the company's profit from direct sales and at the same time reducing food waste and thus improving social welfare.

Collectively, the studies in this dissertation provide useful modeling ideas, decision tools, insights, and guidance for firms to utilize vast sales and operations data to devise more effective business strategies.

Functional annotation signatures of disease susceptibility loci improve SNP association analysis.

BACKGROUND: Genetic association studies are conducted to discover genetic loci that contribute to an inherited trait, identify the variants behind these associations and ascertain their functional role in determining the phenotype. To date, functional annotations of the genetic variants have rarely played more than an indirect role in assessing evidence for association. Here, we demonstrate how these data can be systematically integrated into an association study's analysis plan. RESULTS: We developed a Bayesian statistical model for the prior probability of phenotype-genotype association that incorporates data from past association studies and publicly available functional annotation data regarding the susceptibility variants under study. The model takes the form of a binary regression of association status on a set of annotation variables whose coefficients were estimated through an analysis of associated SNPs in the GWAS Catalog (GC). The functional predictors examined included measures that have been demonstrated to correlate with the association status of SNPs in the GC and some whose utility in this regard is speculative: summaries of the UCSC Human Genome Browser ENCODE super-track data, dbSNP function class, sequence conservation summaries, proximity to genomic variants in the Database of Genomic Variants and known regulatory elements in the Open Regulatory Annotation database, PolyPhen-2 probabilities and RegulomeDB categories. Because we expected that only a fraction of the annotations would contribute to predicting association, we employed a penalized likelihood method to reduce the impact of non-informative predictors and evaluated the model's ability to predict GC SNPs not used to construct the model. We show that the functional data alone are predictive of a SNP's presence in the GC. Further, using data from a genome-wide study of ovarian cancer, we demonstrate that their use as prior data when testing for association is practical at the genome-wide scale and improves power to detect associations. CONCLUSIONS: We show how diverse functional annotations can be efficiently combined to create 'functional signatures' that predict the a priori odds of a variant's association to a trait and how these signatures can be integrated into a standard genome-wide-scale association analysis, resulting in improved power to detect truly associated variants.

BAYESIAN MODEL SEARCH AND MULTILEVEL INFERENCE FOR SNP ASSOCIATION STUDIES.

Technological advances in genotyping have given rise to hypothesis-based association studies of increasing scope. As a result, the scientific hypotheses addressed by these studies have become more complex and more difficult to address using existing analytic methodologies. Obstacles to analysis include inference in the face of multiple comparisons, complications arising from correlations among the SNPs (single nucleotide polymorphisms), choice of their genetic parametrization and missing data. In this paper we present an efficient Bayesian model search strategy that searches over the space of genetic markers and their genetic parametrization. The resulting method for Multilevel Inference of SNP Associations, MISA, allows computation of multilevel posterior probabilities and Bayes factors at the global, gene and SNP level, with the prior distribution on SNP inclusion in the model providing an intrinsic multiplicity correction. We use simulated data sets to characterize MISA's statistical power, and show that MISA has higher power to detect association than standard procedures. Using data from the North Carolina Ovarian Cancer Study (NCOCS), MISA identifies variants that were not identified by standard methods and have been externally "validated" in independent studies. We examine sensitivity of the NCOCS results to prior choice and method for imputing missing data. MISA is available in an R package on CRAN.

Bayesian Model Averaging in the M-Open Framework

This chapter presents a model averaging approach in the M-open setting using sample re-use methods to approximate the predictive distribution of future observations. It first reviews the standard M-closed Bayesian Model Averaging approach and decision-theoretic methods for producing inferences and decisions. It then reviews model selection from the M-complete and M-open perspectives, before formulating a Bayesian solution to model averaging in the M-open perspective. It constructs optimal weights for MOMA:M-open Model Averaging using a decision-theoretic framework, where models are treated as part of the ‘action space’ rather than unknown states of nature. Using ‘incompatible’ retrospective and prospective models for data from a case-control study, the chapter demonstrates that MOMA gives better predictive accuracy than the proxy models. It concludes with open questions and future directions.

A Bayesian Dirichlet-Multinomial Test for Cross-Group Differences

Testing for differences within data sets is an important issue across various applications. Our work is primarily motivated by the analysis of microbiomial composition, which has been increasingly relevant and important with the rise of DNA sequencing. We first review classical frequentist tests that are commonly used in tackling such problems. We then propose a Bayesian Dirichlet-multinomial framework for modeling the metagenomic data and for testing underlying differences between the samples. A parametric Dirichlet-multinomial model uses an intuitive hierarchical structure that allows for flexibility in characterizing both the within-group variation and the cross-group difference and provides very interpretable parameters. A computational method for evaluating the marginal likelihoods under the null and alternative hypotheses is also given. Through simulations, we show that our Bayesian model performs competitively against frequentist counterparts. We illustrate the method through analyzing metagenomic applications using the Human Microbiome Project data.

Bayesian Learning with Dependency Structures via Latent Factors, Mixtures, and Copulas

Bayesian methods offer a flexible and convenient probabilistic learning framework to extract interpretable knowledge from complex and structured data. Such methods can characterize dependencies among multiple levels of hidden variables and share statistical strength across heterogeneous sources. In the first part of this dissertation, we develop two dependent variational inference methods for full posterior approximation in non-conjugate Bayesian models through hierarchical mixture- and copula-based variational proposals, respectively. The proposed methods move beyond the widely used factorized approximation to the posterior and provide generic applicability to a broad class of probabilistic models with minimal model-specific derivations. In the second part of this dissertation, we design probabilistic graphical models to accommodate multimodal data, describe dynamical behaviors and account for task heterogeneity. In particular, the sparse latent factor model is able to reveal common low-dimensional structures from high-dimensional data. We demonstrate the effectiveness of the proposed statistical learning methods on both synthetic and real-world data.

Bayesian variable selection in structured high-dimensional covariate spaces with applications in genomics

We consider the problem of variable selection in regression modeling in high-dimensional spaces where there is known structure among the covariates. This is an unconventional variable selection problem for two reasons: (1) The dimension of the covariate space is comparable, and often much larger, than the number of subjects in the study, and (2) the covariate space is highly structured, and in some cases it is desirable to incorporate this structural information in to the model building process. We approach this problem through the Bayesian variable selection framework, where we assume that the covariates lie on an undirected graph and formulate an Ising prior on the model space for incorporating structural information. Certain computational and statistical problems arise that are unique to such high-dimensional, structured settings, the most interesting being the phenomenon of phase transitions. We propose theoretical and computational schemes to mitigate these problems. We illustrate our methods on two different graph structures: the linear chain and the regular graph of degree k. Finally, we use our methods to study a specific application in genomics: the modeling of transcription factor binding sites in DNA sequences. © 2010 American Statistical Association.

Adaptive Mixture Modelling Metropolis Methods for Bayesian Analysis of Non-linear State-Space Models.

We describe a strategy for Markov chain Monte Carlo analysis of non-linear, non-Gaussian state-space models involving batch analysis for inference on dynamic, latent state variables and fixed model parameters. The key innovation is a Metropolis-Hastings method for the time series of state variables based on sequential approximation of filtering and smoothing densities using normal mixtures. These mixtures are propagated through the non-linearities using an accurate, local mixture approximation method, and we use a regenerating procedure to deal with potential degeneracy of mixture components. This provides accurate, direct approximations to sequential filtering and retrospective smoothing distributions, and hence a useful construction of global Metropolis proposal distributions for simulation of posteriors for the set of states. This analysis is embedded within a Gibbs sampler to include uncertain fixed parameters. We give an example motivated by an application in systems biology. Supplemental materials provide an example based on a stochastic volatility model as well as MATLAB code.

Bayesian Analysis of Latent Threshold Dynamic Models

We discuss a general approach to dynamic sparsity modeling in multivariate time series analysis. Time-varying parameters are linked to latent processes that are thresholded to induce zero values adaptively, providing natural mechanisms for dynamic variable inclusion/selection. We discuss Bayesian model specification, analysis and prediction in dynamic regressions, time-varying vector autoregressions, and multivariate volatility models using latent thresholding. Application to a topical macroeconomic time series problem illustrates some of the benefits of the approach in terms of statistical and economic interpretations as well as improved predictions. Supplementary materials for this article are available online. © 2013 Copyright Taylor and Francis Group, LLC.

Bayesian inference of the number of factors in gene-expression analysis: application to human virus challenge studies.

BACKGROUND: Nonparametric Bayesian techniques have been developed recently to extend the sophistication of factor models, allowing one to infer the number of appropriate factors from the observed data. We consider such techniques for sparse factor analysis, with application to gene-expression data from three virus challenge studies. Particular attention is placed on employing the Beta Process (BP), the Indian Buffet Process (IBP), and related sparseness-promoting techniques to infer a proper number of factors. The posterior density function on the model parameters is computed using Gibbs sampling and variational Bayesian (VB) analysis. RESULTS: Time-evolving gene-expression data are considered for respiratory syncytial virus (RSV), Rhino virus, and influenza, using blood samples from healthy human subjects. These data were acquired in three challenge studies, each executed after receiving institutional review board (IRB) approval from Duke University. Comparisons are made between several alternative means of per-forming nonparametric factor analysis on these data, with comparisons as well to sparse-PCA and Penalized Matrix Decomposition (PMD), closely related non-Bayesian approaches. CONCLUSIONS: Applying the Beta Process to the factor scores, or to the singular values of a pseudo-SVD construction, the proposed algorithms infer the number of factors in gene-expression data. For real data the "true" number of factors is unknown; in our simulations we consider a range of noise variances, and the proposed Bayesian models inferred the number of factors accurately relative to other methods in the literature, such as sparse-PCA and PMD. We have also identified a "pan-viral" factor of importance for each of the three viruses considered in this study. We have identified a set of genes associated with this pan-viral factor, of interest for early detection of such viruses based upon the host response, as quantified via gene-expression data.

Nested dictionary learning for hierarchical organization of imagery and text

A tree-based dictionary learning model is developed for joint analysis of imagery and associated text. The dictionary learning may be applied directly to the imagery from patches, or to general feature vectors extracted from patches or superpixels (using any existing method for image feature extraction). Each image is associated with a path through the tree (from root to a leaf), and each of the multiple patches in a given image is associated with one node in that path. Nodes near the tree root are shared between multiple paths, representing image characteristics that are common among different types of images. Moving toward the leaves, nodes become specialized, representing details in image classes. If available, words (text) are also jointly modeled, with a path-dependent probability over words. The tree structure is inferred via a nested Dirichlet process, and a retrospective stick-breaking sampler is used to infer the tree depth and width.

The vertebrate taxonomy ontology: a framework for reasoning across model organism and species phenotypes.

BACKGROUND: A hierarchical taxonomy of organisms is a prerequisite for semantic integration of biodiversity data. Ideally, there would be a single, expansive, authoritative taxonomy that includes extinct and extant taxa, information on synonyms and common names, and monophyletic supraspecific taxa that reflect our current understanding of phylogenetic relationships. DESCRIPTION: As a step towards development of such a resource, and to enable large-scale integration of phenotypic data across vertebrates, we created the Vertebrate Taxonomy Ontology (VTO), a semantically defined taxonomic resource derived from the integration of existing taxonomic compilations, and freely distributed under a Creative Commons Zero (CC0) public domain waiver. The VTO includes both extant and extinct vertebrates and currently contains 106,947 taxonomic terms, 22 taxonomic ranks, 104,736 synonyms, and 162,400 cross-references to other taxonomic resources. Key challenges in constructing the VTO included (1) extracting and merging names, synonyms, and identifiers from heterogeneous sources; (2) structuring hierarchies of terms based on evolutionary relationships and the principle of monophyly; and (3) automating this process as much as possible to accommodate updates in source taxonomies. CONCLUSIONS: The VTO is the primary source of taxonomic information used by the Phenoscape Knowledgebase (http://phenoscape.org/), which integrates genetic and evolutionary phenotype data across both model and non-model vertebrates. The VTO is useful for inferring phenotypic changes on the vertebrate tree of life, which enables queries for candidate genes for various episodes in vertebrate evolution.

Bagging and the Bayesian Bootstrap

Bagging is a method of obtaining more ro- bust predictions when the model class under consideration is unstable with respect to the data, i.e., small changes in the data can cause the predicted values to change significantly. In this paper, we introduce a Bayesian ver- sion of bagging based on the Bayesian boot- strap. The Bayesian bootstrap resolves a the- oretical problem with ordinary bagging and often results in more efficient estimators. We show how model averaging can be combined within the Bayesian bootstrap and illustrate the procedure with several examples.