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Milad MalekiPirbazari, Bilkent University

23-04-2021

Risk-averse Allocation Indices for Multi-armed Bandit Problem

Abstract:

In classical multi-armed bandit problem, the aim is to find a policy maximizing the expected total reward, implicitly assuming that the decision-maker is risk-neutral. On the other hand, the decision makers are risk-averse in some real life applications. In this study, we design a new setting based on the concept of dynamic risk measures where the aim is to find a policy with the best risk-adjusted total discounted outcome. We provide a theoretical analysis of multi-armed bandit problem with respect to this novel setting, and propose a priority-index heuristic which gives risk-averse allocation indices having a structure similar to Gittins index. Although an optimal policy is shown not always to have index-based form, empirical results express the excellence of this heuristic and show that with risk-averse allocation indices we can achieve optimal or near-optimal interpretable policies.