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A Practically Efficient Approach for Solving Adaptive Distributionally Robust Linear Optimization Problems

Dimitris Bertsimas (dbertsim***at***mit.edu)
Melvyn Sim (melvynsim***at***gmail.com)
Meilin Zhang (214101***at***gmail.com)

Abstract: We develop a modular and tractable framework for solving an adaptive distributionally robust linear opti- mization problem, where we minimize the worst-case expected cost over an ambiguity set of probability dis- tributions. The adaptive distrbutaionally robust optimization framework caters for dynamic decision making, where decisions can adapt to the uncertain outcomes as they unfold in stages. For tractability considerations, we focus on a class of second-order conic (SOC) representable ambiguity set, though our results can easily be extended to more general conic representations. We show that the adaptive distributionally robust linear optimization problem can be formulated as a classical robust optimization problem. To obtain tractable formulation, we approximate the adaptive distributionally robust optimization problem using linear decision rule (LDR) techniques. More interestingly, by incorporating the primary and auxiliary random variables of the lifted ambiguity set in the LDR approximation, we can significantly improve the solutions and for a class of adaptive distributionally robust optimization problems, exact solutions can also be obtained. Using the new LDR approximation, we can transform the distributionally adaptive robust optimization problem to a classical robust optimization problem with an SOC representable uncertainty set. Finally, to demonstrate the potential for solving management decision problems, we develop an algebraic modeling package and illustrate how it can be used to facilitate modeling and obtain high quality solutions for addressing a medical appointment scheduling problem and a multiperiod inventory control problem.

Keywords: robust optimization, distributionally robust, adaptive optimization

Category 1: Robust Optimization

Citation: 2017, Working paper, NUS Business School

Download: [PDF]

Entry Submitted: 03/05/2016
Entry Accepted: 03/05/2016
Entry Last Modified: 06/01/2017

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