Optimization with Multi-sourced Information and Unknown Reliability: A Distributionally Robust Approach

TL;DR

This paper introduces a distributionally robust optimization framework that integrates multiple data sources with unknown reliability, dynamically updating trust levels to improve decision-making under uncertainty.

Contribution

It proposes a novel MR-DRO model with nonparametric data fusion, a dynamic trust update mechanism, and the concept of probability dominance, enhancing robustness and trust management in optimization.

Findings

Outperforms traditional single-source methods in resource allocation.

Effectively incorporates dynamic trust updates based on source performance.

Demonstrates robustness in portfolio optimization scenarios.

Abstract

In problems that involve input parameter information gathered from multiple data sources with varying reliability, incorporating decision makers' trust on different sources in optimization models can potentially improve solution performance. In this work, we propose a novel multi-reference distributionally robust optimization (MR-DRO) framework, where the model inputs are uncertain and their probability distributions can be statistically inferred from multiple information sources. Via nonparametric data fusion, we construct a Wasserstein ambiguity set to minimize the worst-case expected cost of a stochastic objective function, accounting for both uncertainty and unknown reliability of several given information sources. We reformulate the MR-DRO model as a linear program given linear objective and constraints in the original problem. We also incorporate a dynamic trust update mechanism that adjusts the trust for each source based on its performance over time. In addition, we introduce the concept of probability dominance to identify sources with dominant trust. Via computational studies using resource allocation and portfolio optimization instances, we demonstrate the effectiveness of the MR-DRO approach compared to traditional optimization frameworks relying on a single data source. Our results highlight the significance of integrating (dynamic) decision maker's trust in optimization under uncertainty, particularly when given diverse and potentially conflicting input data.