Dynamic Inverse Optimization under Drift and Shocks: Theory, Regret Bounds, and Applications

Jinho Cha
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Jinho Cha: Gwinnett Technical College

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Abstract: The growing prevalence of drift and shocks in modern decision environments exposes a gap between classical optimization theory and real-world practice. Standard models assume fixed objectives, yet organizations from hospitals to power grids routinely adapt to shifting priorities, noisy data, and abrupt disruptions. To address this gap, this study develops a dynamic inverse optimization framework that recovers hidden, time-varying preferences from observed allocation trajectories. The framework unifies identifiability analysis with regret guarantees conditions are established for existence and uniqueness of recovered parameters, and sharp static and dynamic regret bounds are derived to characterize responsiveness to gradual drift and sudden shocks. Methodologically, a drift-aware estimator grounded in convex analysis and online learning theory is introduced, with finite-sample guarantees on recovery accuracy. Computational experiments in healthcare, energy, logistics, and finance reveal heterogeneous recovery patterns, ranging from rapid resilience to persistent vulnerability. Overall, dynamic inverse optimization emerges as both a theoretical contribution and a broadly applicable diagnostic tool for benchmarking resilience, uncovering hidden behavioral shifts, and guiding policy interventions in complex stochastic systems.

Date: 2025-09
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