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Making a Case for Robust Optimization Models

Author

Listed:
  • Dawei Bai

    (Salomon Brothers Inc., 7 World Trade Center, New York, New York, 10048)

  • Tamra Carpenter

    (Bellcore, 445 South Street, Morristown, New Jersey 07960)

  • John Mulvey

    (Engineering and Management Systems Program, School of Engineering and Applied Science, Princeton University, Princeton, New Jersey 08544)

Abstract

Robust optimization searches for recommendations that are relatively immune to anticipated uncertainty in the problem parameters. Stochasticities are addressed via a set of discrete scenarios. This paper presents applications in which the traditional stochastic linear program fails to identify a robust solution---despite the presence of a cheap robust point. Limitations of piecewise linearization are discussed. We argue that a concave utility function should be incorporated in a model whenever the decision maker is risk averse. Examples are taken from telecommunications and financial planning.

Suggested Citation

  • Dawei Bai & Tamra Carpenter & John Mulvey, 1997. "Making a Case for Robust Optimization Models," Management Science, INFORMS, vol. 43(7), pages 895-907, July.
    • Handle: RePEc:inm:ormnsc:v:43:y:1997:i:7:p:895-907
    DOI: 10.1287/mnsc.43.7.895
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    Citations

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    Cited by:

    1. Chen, Andrew N.K., 2006. "Robust optimization for performance tuning of modern database systems," European Journal of Operational Research, Elsevier, vol. 171(2), pages 412-429, June.
    2. Hildebrandt, Patrick & Knoke, Thomas, 2009. "Optimizing the shares of native tree species in forest plantations with biased financial parameters," Ecological Economics, Elsevier, vol. 68(11), pages 2825-2833, September.
    3. Chen, Andrew N.K. & Goes, Paulo B. & Gupta, Alok & Marsden, James R., 2006. "Heuristics for selecting robust database structures with dynamic query patterns," European Journal of Operational Research, Elsevier, vol. 168(1), pages 200-220, January.
    4. Jin, S.W. & Li, Y.P. & Huang, G.H. & Nie, S., 2018. "Analyzing the performance of clean development mechanism for electric power systems under uncertain environment," Renewable Energy, Elsevier, vol. 123(C), pages 382-397.
    5. Piao, M.J. & Li, Y.P. & Huang, G.H. & Nie, S., 2015. "Risk analysis for Shanghai's electric power system under multiple uncertainties," Energy, Elsevier, vol. 87(C), pages 104-119.
    6. Hess, Christian & Seri, Raffaello & Choirat, Christine, 2010. "Ergodic theorems for extended real-valued random variables," Stochastic Processes and their Applications, Elsevier, vol. 120(10), pages 1908-1919, September.
    7. Randall, M. & Montgomery, J. & Lewis, A., 2022. "Robust temporal optimisation for a crop planning problem under climate change uncertainty," Operations Research Perspectives, Elsevier, vol. 9(C).
    8. Pereira, Daniel Filipe & Oliveira, José Fernando & Carravilla, Maria Antónia, 2023. "Design of a sales plan in a hybrid contractual and non-contractual context in a setting of limited capacity: A robust approach," International Journal of Production Economics, Elsevier, vol. 260(C).
    9. Schönlein, Michael & Makuschewitz, Thomas & Wirth, Fabian & Scholz-Reiter, Bernd, 2013. "Measurement and optimization of robust stability of multiclass queueing networks: Applications in dynamic supply chains," European Journal of Operational Research, Elsevier, vol. 229(1), pages 179-189.
    10. Yu, Chian-Son & Li, Han-Lin, 2000. "A robust optimization model for stochastic logistic problems," International Journal of Production Economics, Elsevier, vol. 64(1-3), pages 385-397, March.
    11. Jabbarzadeh, Armin & Haughton, Michael & Pourmehdi, Fahime, 2019. "A robust optimization model for efficient and green supply chain planning with postponement strategy," International Journal of Production Economics, Elsevier, vol. 214(C), pages 266-283.
    12. Caserta, Marco & Voß, Stefan, 2019. "The robust multiple-choice multidimensional knapsack problem," Omega, Elsevier, vol. 86(C), pages 16-27.
    13. Leung, Stephen C.H. & Tsang, Sally O.S. & Ng, W.L. & Wu, Yue, 2007. "A robust optimization model for multi-site production planning problem in an uncertain environment," European Journal of Operational Research, Elsevier, vol. 181(1), pages 224-238, August.
    14. Guan, Panbo & Huang, Guohe & Wu, Chuanbao & Wang, Linrui & Li, Chaoci & Wang, Yuanyi, 2019. "Analysis of emission taxes levying on regional electric power structure adjustment with an inexact optimization model - A case study of Zibo, China," Energy Economics, Elsevier, vol. 84(C).
    15. Chen, C. & Li, Y.P. & Huang, G.H., 2013. "An inexact robust optimization method for supporting carbon dioxide emissions management in regional electric-power systems," Energy Economics, Elsevier, vol. 40(C), pages 441-456.
    16. Li, Y.P. & Huang, G.H. & Nie, X.H. & Nie, S.L., 2008. "A two-stage fuzzy robust integer programming approach for capacity planning of environmental management systems," European Journal of Operational Research, Elsevier, vol. 189(2), pages 399-420, September.
    17. Chen, C. & Li, Y.P. & Huang, G.H. & Zhu, Y., 2012. "An inexact robust nonlinear optimization method for energy systems planning under uncertainty," Renewable Energy, Elsevier, vol. 47(C), pages 55-66.

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