Adjustable Robust Optimization with Decision Rules Based on Inexact Revealed Data

CentER Discussion Paper Series No. 2014-003

31 Pages Posted: 10 Jan 2014

See all articles by F.J.C.T. de Ruiter

F.J.C.T. de Ruiter

Tilburg University - Center for Economic Research (CentER)

Aharon Ben-Tal

Technion-Israel Institute of Technology

R.C.M. Brekelmans

Tilburg University - Tilburg University School of Economics and Management

Dick den Hertog

Tilburg University - Department of Econometrics & Operations Research

Date Written: January 9, 2014

Abstract

Adjustable robust optimization (ARO) is a technique to solve dynamic (multistage) optimization problems. In ARO, the decision in each stage is a function of the information accumulated from the previous periods on the values of the uncertain parameters. This information, however, is often inaccurate; there is much evidence in the information management literature that even in our Big Data era the data quality is often poor. Reliance on the data "as is" may then lead to poor performance of ARO, or in fact to any "data-driven" method. In this paper, we remedy this weakness of ARO by introducing a methodology that treats past data itself as an uncertain parameter. We show that algorithmic tractability of the robust counterparts associated with this extension of ARO is still maintained. The benefit of the new approach is demonstrated by a production-inventory application.

Keywords: adjustable robust optimization, decision rules, inexact data, poor data quality

JEL Classification: C00, C15, C44, C61, C63

Suggested Citation

de Ruiter, F.J.C.T. and Ben-Tal, Aharon and Brekelmans, R.C.M. and den Hertog, Dick, Adjustable Robust Optimization with Decision Rules Based on Inexact Revealed Data (January 9, 2014). CentER Discussion Paper Series No. 2014-003. Available at SSRN: https://ssrn.com/abstract=2376660 or http://dx.doi.org/10.2139/ssrn.2376660

F.J.C.T. de Ruiter (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Aharon Ben-Tal

Technion-Israel Institute of Technology ( email )

Technion City
Haifa 32000, Haifa 32000
Israel

R.C.M. Brekelmans

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
B 1029
5000 LE Tilburg
Netherlands
+31 13 466 8234 (Phone)

Dick Den Hertog

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
131
Abstract Views
689
rank
229,154
PlumX Metrics