Warning: Discretize with Care

Working Paper No QM 93-02

Posted: 14 Jun 2000

See all articles by David J. Braden

David J. Braden

Washington University in St. Louis - John M. Olin Business School

Harry Groenevelt

Simon Graduate School of Business, University of Rochester

Abstract

Decision analysts commonly use low-order discrete approximation of probability distributions to reduce computational effort. We have found that three popular discretization methods can lead to serious errors in certain applications, among them, news vendor problem and scheduling decisions for service-facilities. We demonstrate that the moment-matching approach to discretization can be particularly poor, and discuss how one might uncover potential problems due to discretization.

JEL Classification: G00

Suggested Citation

Braden, David J. and Groenevelt, Harry, Warning: Discretize with Care. Working Paper No QM 93-02, Available at SSRN: https://ssrn.com/abstract=6156

David J. Braden

Washington University in St. Louis - John M. Olin Business School

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Harry Groenevelt (Contact Author)

Simon Graduate School of Business, University of Rochester ( email )

Carol Simon Hall 3-339
Rochester, NY 14627
United States
585-275-2825 (Phone)
585-275-9331 (Fax)

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