Reducing Simulation Input-Model Risk via Input Model Averaging

Barry L. Nelson (), Alan T. K. Wan (), Guohua Zou (), Xinyu Zhang () and Xi Jiang ()
Additional contact information
Barry L. Nelson: Northwestern University, Evanston, Illinois 60208-3119
Alan T. K. Wan: City University of Hong Kong, Kowloon, Hong Kong
Guohua Zou: Capital Normal University, Beijing 100048, China
Xinyu Zhang: University of Science and Technology of China, Hefei 230052, China; Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100190, China
Xi Jiang: Northwestern University, Evanston, Illinois 60208-3119

INFORMS Journal on Computing, 2021, vol. 33, issue 2, 672-684

Abstract: Input uncertainty is an aspect of simulation model risk that arises when the driving input distributions are derived or “fit” to real-world, historical data. Although there has been significant progress on quantifying and hedging against input uncertainty, there has been no direct attempt to reduce it via better input modeling. The meaning of “better” depends on the context and the objective: Our context is when (a) there are one or more families of parametric distributions that are plausible choices; (b) the real-world historical data are not expected to perfectly conform to any of them; and (c) our primary goal is to obtain higher-fidelity simulation output rather than to discover the “true” distribution. In this paper, we show that frequentist model averaging can be an effective way to create input models that better represent the true, unknown input distribution, thereby reducing model risk. Input model averaging builds from standard input modeling practice, is not computationally burdensome, requires no change in how the simulation is executed nor any follow-up experiments, and is available on the Comprehensive R Archive Network (CRAN). We provide theoretical and empirical support for our approach.

Keywords: input modeling; stochastic simulation; input uncertainty (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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