Ranking and selection meets robust optimization
Ilya O. Ryzhov,Boris Defourny,Warren B. Powell +2 more
- 09 Dec 2012
- pp 48
TL;DR: This work defines a Bayesian ranking and selection problem with a robust implementation decision that is risk-neutral with respect to simulation outcomes, but risk-averse withrespect to the implementation decision.
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Abstract: The objective of ranking and selection is to efficiently allocate an information budget among a set of design alternatives with unknown values in order to maximize the decision-maker's chances of discovering the best alternative. The field of robust optimization, however, considers risk-averse decision makers who may accept a suboptimal alternative in order to minimize the risk of a worst-case outcome. We bring these two fields together by defining a Bayesian ranking and selection problem with a robust implementation decision. We propose a new simulation allocation procedure that is risk-neutral with respect to simulation outcomes, but risk-averse with respect to the implementation decision. We discuss the properties of the procedure and present numerical examples illustrating the difference between the risk-averse problem and the more typical risk-neutral problem from the literature.
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