Preference Robust Optimization for Quasi-concave Choice Functions

In behavioural economics, a decision makers preferences are expressed by choice functions. Preference robust optimization (PRO) is concerned with problems where the decision makers preferences are ambiguous, and the optimal decision is based on a robust choice function with respect to a preference ambiguity set. In this paper, we propose a PRO model to support choice functions that are: (i) monotonic (prefer more to less), (ii) quasi-concave (prefer diversification), and (iii) multi-attribute (have multiple objectives/criteria). As our main result, we show that the robust choice function can be constructed efficiently by solving a sequence of linear programming problems. Then, the robust choice function can be optimized efficiently by solving a sequence of convex optimization problems. Our numerical experiments for the portfolio optimization and capital allocation problems show that our method is practical and scalable.