Integrated risk formulation for the stochastic facility location problem

J. M. Muñoz-Ocaña, A. M. Rodríguez-Chía, F. Saldanha-da-Gama

In this talk, we discuss a stochastic capacitated facility location problem where customer demands are the source of uncertainty. We analyze the situation in which the decision-maker exhibits combined risk attitudes, as they may depend on the involved costs. While, lower expected costs could encourage the decision-maker to acquire a risk-averse attitude, higher expected costs could lead a risk-seeking criterion. The proposed formulation will then determine the appropriate attitude of the decision-maker in the optimal solution according to the involved costs. Generalizations of these risk attitudes are considered in this talk by incorporating confidence levels into the formulations that depend on the total costs, since risk-averse or risk-seeker decision-makers may present different levels of risk tolerance. Higher expected costs may increase risk aversion while lower expected costs may reduce it. Similarly, lower expected costs may increase risk-seeking behavior.

Keywords: Stochastic mixed-integer programming, capacitated facility location problem, risk attitudes

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