Classification Models Via Tabu Search: An Application to Early Stage Venture Classification

21 Pages Posted: 29 Jul 2015 Last revised: 5 Sep 2015

See all articles by Samir Elhedhli

Samir Elhedhli

University of Waterloo - Department of Management Sciences

Canan Akdemir

University of Waterloo - Department of Management Sciences

Thomas B. Astebro

HEC Paris - Economics and Decision Sciences

Date Written: July 28, 2015

Abstract

We model the decision making process used by experts at the Canadian Innovation Centre to classify early stage venture proposals based on potential commercial success. The decision is based on thirty seven attributes that take values in (-1; 0; 1). We adopt a conjunctive decision framework due to Astebro and Elhedhli that selects a subset of attributes and determines two threshold values: one for the maximum allowed negatives (n) and one for minimum required positives (p). A proposal is classified as a success if the number of positives is greater than or equal to p and the number of negatives is less than or equal to n over the selected attributes. Based on data of 561 observations, the selection of attributes and the determination of the threshold values is modeled as a large-scale mixed integer program. Two solution approaches are explored: Benders decomposition and Tabu search. The first was very slow to converge, while the second provided high quality solutions quickly. Tabu Search provides excellent classification accuracy for predicting commercial successes as well as replicating the experts' forecasts, opening the venue for the use of Tabu Search in scoring and classification problems.

Keywords: tabu search, large-scale mixed integer program, classification, decision heuristic, early stage venture forecast

JEL Classification: C45, C53, C63

Suggested Citation

Elhedhli, Samir and Akdemir, Canan and Astebro, Thomas B., Classification Models Via Tabu Search: An Application to Early Stage Venture Classification (July 28, 2015). HEC Paris Research Paper No. SPE-2015-1097. Available at SSRN: https://ssrn.com/abstract=2636835 or http://dx.doi.org/10.2139/ssrn.2636835

Samir Elhedhli

University of Waterloo - Department of Management Sciences ( email )

Waterloo, Ontario N2L 3G1
Canada

Canan Akdemir

University of Waterloo - Department of Management Sciences ( email )

Waterloo, Ontario N2L 3G1
Canada

Thomas B. Astebro (Contact Author)

HEC Paris - Economics and Decision Sciences ( email )

Jouy-en-Josas Cedex, 78351
France

HOME PAGE: http://www.hec.edu/Faculty-Research/Faculty-Directory/ASTEBRO-Thomas

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