Monotone approximation of decision problems

Monotone approximation of decision problems

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Article ID: iaor20105610
Volume: 58
Issue: 4-Part-2
Start Page Number: 1158
End Page Number: 1177
Publication Date: Jul 2010
Journal: Operations Research
Authors: ,
Keywords: credit cards
Abstract:

Many decision problems exhibit structural properties in the sense that the objective function is a composition of different component functions that can be identified using empirical data. We consider the approximation of such objective functions, subject to general monotonicity constraints on the component functions. Using a constrained B-spline approximation, we provide a data-driven robust optimization method for environments that can be sample-sparse. The method, which simultaneously identifies and solves the decision problem, is illustrated for the problem of optimal debt settlement in the credit-card industry.

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