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  • What You Should Do

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    veda20
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    This document discusses two approaches to dealing with uncertainty: maximizing expected profit by finding the optimal policy for an uncertain outcome X, versus maximizing profit using the expected value of X which does not account for uncertainty and can lead to suboptimal policies. It provides the example of finding the best airline overbooking policy to maximize average profit per flight given uncertain no-show levels versus using the average no-show value which does not consider uncertainty.

    Originalbeschreibung:

    finance

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    This document discusses two approaches to dealing with uncertainty: maximizing expected profit by finding the optimal policy for an uncertain outcome X, versus maximizing profit using the expected value of X which does not account for uncertainty and can lead to suboptimal policies. It provides the example of finding the best airline overbooking policy to maximize average profit per flight given uncertain no-show levels versus using the average no-show value which does not consider uncertainty.

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    13 Ansichten1 Seite

    What You Should Do

    Hochgeladen von

    veda20
    This document discusses two approaches to dealing with uncertainty: maximizing expected profit by finding the optimal policy for an uncertain outcome X, versus maximizing profit using the expected value of X which does not account for uncertainty and can lead to suboptimal policies. It provides the example of finding the best airline overbooking policy to maximize average profit per flight given uncertain no-show levels versus using the average no-show value which does not consider uncertainty.

    Copyright:

    © All Rights Reserved
    Als PPSX, PDF, TXT herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    von 1

    Facing Uncertainty (represented by X)

    What You Should Do:


    max imize { E[ Pr ofit(X ,p) ] }
    all policies p
    For example, find the overbooking policy that maximizes your average profit
    per flight, as the no-show level varies from flight to flight.

    What is Typically (Incorrectly) Done in Todays World:


    max imize { Pr ofit(E[X],p) }
    all policies p
    This is equivalent to finding the overbooking policy that maximizes your profit
    from a flight with precisely E[X] (a pre-known, specific number of) no-shows.

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