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Robust Sample Average Approximation

Authors
  • Bertsimas, Dimitris
  • Gupta, Vishal
  • Kallus, Nathan
Type
Preprint
Publication Date
Jan 19, 2016
Submission Date
Aug 19, 2014
Identifiers
arXiv ID: 1408.4445
Source
arXiv
License
Yellow
External links

Abstract

Sample average approximation (SAA) is a widely popular approach to data-driven decision-making under uncertainty. Under mild assumptions, SAA is both tractable and enjoys strong asymptotic performance guarantees. Similar guarantees, however, do not typically hold in finite samples. In this paper, we propose a modification of SAA, which we term Robust SAA, which retains SAA's tractability and asymptotic properties and, additionally, enjoys strong finite-sample performance guarantees. The key to our method is linking SAA, distributionally robust optimization, and hypothesis testing of goodness-of-fit. Beyond Robust SAA, this connection provides a unified perspective enabling us to characterize the finite sample and asymptotic guarantees of various other data-driven procedures that are based upon distributionally robust optimization. This analysis provides insight into the practical performance of these various methods in real applications. We present examples from inventory management and portfolio allocation, and demonstrate numerically that our approach outperforms other data-driven approaches in these applications.

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