Dr. Wolfram Wiesemann

"Dice"-sion Making under Uncertainty: When Can a Random Decision Reduce Risk?

Wolfram Wiesemann



 

 

 

 

Abstract

Stochastic programming and distributionally robust optimization seek deterministic decisions that optimize a risk measure, possibly in view of the most adverse distribution in an ambiguity set. We investigate under which circumstances such deterministic decisions are strictly outperformed by random decisions which depend on a randomization device producing uniformly distributed samples that are independent of all uncertain factors affecting the decision problem. We find that in the absence of distributional ambiguity, deterministic decisions are optimal if both the risk measure and the feasible region are convex, or alternatively if the risk measure is mixture-quasiconcave. Several classes of risk measures, such as mean (semi-)deviation and mean (semi-)moment measures, fail to be mixture-quasiconcave and can therefore give rise to problems in which the decision maker benefits from randomization. Under distributional ambiguity, on the other hand, we show that for any ambiguity averse risk measure there always exists a decision problem (with a non-convex, e.g., mixed-integer, feasible region) in which a randomized decision strictly dominates all deterministic decisions.

Biography

Wolfram Wiesemann is Associate Professor of Management Science and Operations as well as Fellow of the KPMG Centre for Advanced Business Analytics at Imperial College Business School, London. Before joining the faculty of Imperial College Business School in 2013, he was a post-doctoral researcher at Imperial College London (2010-2011) and an Imperial College Research Fellow (2011-2012). He was a visiting researcher at the Institute of Statistics and Mathematics at Vienna University of Economics and Business, Austria, in 2010, the Computer-Aided Systems Laboratory at Princeton University, USA, in 2011, and the Industrial Engineering and Operations Research Department at Columbia University, USA, in 2012. Wolfram’s research interests revolve around the methodological aspects of decision-making under uncertainty, as well as applications in operations management, energy and finance.

COMPUTATIONAL MANAGEMENT SCIENCE 2017
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