Approximate Resolution of Stochastic Choice-based Discrete Planning

TL;DR

This paper introduces a flexible approximation framework and efficient solution methods for stochastic choice-based discrete planning problems, enhancing solution quality and speed across various applications.

Contribution

It develops a unified modeling and approximation approach for a broad class of uncertain sequential decision problems, improving upon ad-hoc methods.

Findings

The framework provides near-optimal solutions for diverse problems.

The approach outperforms existing methods in computational experiments.

It significantly improves solution speed and quality in assortment and facility location problems.

Abstract

Stochastic choice-based discrete planning is a broad class of decision-making problems characterized by a sequential decision-making process involving a planner and a group of customers. The firm or planner first decides a subset of options to offer to the customers, who, in turn, make selections based on their utilities of those options. This problem has extensive applications in many areas, including assortment planning, product line design, and facility location. A key feature of these problems is that the firm cannot fully observe the customers' utilities or preferences, which results in intrinsic and idiosyncratic uncertainties. Most works in the literature have studied a specific type of uncertainty, resulting in customized decision models that are subsequently tackled using ad-hoc algorithms designed to exploit the specific model structure. In this paper we propose a modeling framework capable of solving this family of sequential problems that works for a large variety of uncertainties. We then leverage an approximation scheme and develop an adaptable mixed-integer linear programming method. To speed up the solution process, we further develop an efficient decomposition approach. We show that our solution framework can yield solutions proven to be (near-)optimal for a broad class of problems. We illustrate this by applying our approach to three classical application problems: constrained assortment optimization and two facility location problems. Through extensive computational experiments, we demonstrate the performance of our approach in terms of both solution quality and computational speed, and provide computational insights. In particular, when we use our method to solve the constrained assortment optimization problem under the Exponomial choice model, it improves the state-of-the-art.