This dissertation presents three essays that investigate how managers leverage heuristics in a complex and dynamic business environment, focusing on retail as the primary business context. I provide insights on how managers use heuristics and interact with algorithms to make better operational decisions and how they make retail decisions involving consumer returns as well as order quantity and pricing decisions. The first essay examines, through econometric analysis of detailed transactional data, whether managers possess exogenous information (i.e., information not utilized by the algorithms) and the capability to transform that information into modifications that improve upon algorithmic decisions. I probe the boundary conditions of when algorithms work and how managers can contribute outside the boundaries. I find that managers can systematically and consistently improve restocking recommendations from algorithms, yielding an average savings of 2.5% of the cost of goods sold. The second essay presents a behavioral analysis of return policy decision-making in a retail environment with aggregate demand and individual product valuation uncertainties. Leveraging a generalized newsvendor model, I conduct a randomized behavioral experiment to understand how individuals make order quantity, price, and refund amount decisions and the causal effect of salvage value on these decisions. I find that the salvage value plays an important role in affecting return policy decisions. Further, I reveal several time-dependent behavioral regularities in decision-making that I explain through a process theory, thus providing insights regarding how decisionmakers use heuristics to dynamically make decisions and a new direction with testable hypotheses for future research. The third essay investigates how decision-making environments affect managers' exploration of decision sets, which is fundamental in understanding the adaptive behavior in decision-making under uncertainty. I hypothesize the decision-maker's exploration behavior using two individual-level decision-making theories, prospect theory and bounded rationality. I analyze how individuals respond to environmental change and unpack their exploration behavior using the generalized newsvendor experiment introduced in the second essay. Further, using process theory as our theoretical lens, I test and explain the mechanism of how profit performance can mediate the effect of changing environment on explorations.
