Ranking and selection meets robust optimization
Ilya O. Ryzhov, Boris Defourny, Warren B. Powell · 2012
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.