Infinite Horizon Optimization

Abstract

Industry is often accused of being short-sighted in its planning and implementation at both tactical and strategic levels, with one proverbial eye firmly fixed on next quarter’s profit margin. However, planning tools themselves are at least partly to blame, almost always incorporating a somewhat arbitrary finite horizon, thus inviting the end-of-study distortions inherent in finite horizon lookaheads. The few exceptions that incorporate an unbounded horizon often make the heroic assumption that the future will bring a world exactly like that we confront today (e.g., the repeated plant assumption of the classical engineering economics treatment of equipment replacement). In this talk, we discuss mathematical programming models and algorithms for general time-varying problem that allow for the finite recursive computation of optimal decisions for an unlimited horizon. They key insight here is that although the decisions made near the end of the horizon may be seriously distorted by end of study-of-study effects, the near term and in particular the first decision will be least affected. This decoupling of the present and future decisions may be driven by discounting, uncertainty, or artificially through a tie-breaking selection. Applications will be discussed in capacity expansion and equipment replacement. Implications for solving infinite dimensional mathematical programs will be addressed.

Opportunities of NSF funding in Operations Research will be discussed at the end of the talk.

Thursday, November 12, 2009

3:00 – 4:00 P.M.

372 Science and Engineering Building

(Refreshments at 2:30-3:00 PM in the kitchen area adjacent to 368 SEB)