Localization ROC (LROC) observer studies examined whether detector response compensation (DRC) in ordered-subset, expectation-maximization (OSEM) reconstructions helps in the detection and localization of hot tumors. Simulated gallium (Ga-67) images of the thoracic region were used in the study. The projection data modeled the acquisition of attenuated 93- and 185-keV photons with a medium-energy parallel-hole collimator, but scatter was not modeled. Images were reconstructed with five strategies: 1) OSEM with no DRC; 2) OSEM preceded by restoration filtering; 3) OSEM with iterative DRC; 4) OSEM with an ideal DRC; and 5) filtered backprojection (FBP) with no DRC. All strategies included attenuation correction. There were four LROC studies conducted. In a study using a single tumor activity, the ideal DRC offered the best performance, followed by iterative DRC, restoration filtering, OSEM with no DRC, and FBP. Statistical significance at the 5% level was found between all pairs of strategies except for restoration filtering and OSEM with no DRC. A similar ranking was found for a more realistic study using multiple tumor activities. Additional studies considered the effects of OSEM iteration number and tumor activity on the detection improvement that iterative DRC offered with respect to OSEM with no DRC.