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research article

From Data to Decisions: Distributionally Robust Optimization is Optimal

Van Parys, Bart P.G.
•
Mohajerin Esfahani, Peyman  
•
Kuhn, Daniel  
2021
Management Science

We study stochastic programs where the decision-maker cannot observe the distribution of the exogenous uncertainties but has access to a finite set of independent samples from this distribution. In this setting, the goal is to find a procedure that transforms the data to an estimate of the expected cost function under the unknown data-generating distribution, i.e., a predictor, and an optimizer of the estimated cost function that serves as a near-optimal candidate decision, i.e., a prescriptor. As functions of the data, predictors and prescriptors constitute statistical estimators. We propose a meta-optimization problem to find the least conservative predictors and prescriptors subject to constraints on their out-of-sample disappointment. The out-of-sample disappointment quantifies the probability that the actual expected cost of the candidate decision under the unknown true distribution exceeds its predicted cost. Leveraging tools from large deviations theory, we prove that this meta-optimization problem admits a unique solution: The best predictor-prescriptor pair is obtained by solving a distributionally robust optimization problem over all distributions within a given relative entropy distance from the empirical distribution of the data.

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Type
research article
DOI
10.1287/mnsc.2020.3678
Author(s)
Van Parys, Bart P.G.
Mohajerin Esfahani, Peyman  
Kuhn, Daniel  
Date Issued

2021

Published in
Management Science
Volume

67

Issue

6

Start page

3321

End page

3984

Subjects

Data-driven optimization

•

Distributionally robust optimization

•

Large deviations theory

•

Relative entropy

•

Convex optimization

•

Observed Fisher information

Note

Available from Optimization Online

URL

URL

http://www.optimization-online.org/DB_HTML/2017/04/5961.html
Editorial or Peer reviewed

REVIEWED

Written at

EPFL

EPFL units
RAO  
Available on Infoscience
April 13, 2017
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/136485
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