Matthias C. M. Troffaes

Decision making under uncertainty using imprecise probabilities

Various ways for decision making with imprecise probabilities-admissibility, maximal expected utility, maximality, E-admissibility, @C-maximax, @C-maximin, all of which are well known from the literature-are discussed and compared. We generalise a well-known sufficient condition for existence of optimal decisions. A simple numerical example shows how these criteria can work in practice, and demonstrates their differences. Finally, we suggest an efficient approach to calculate optimal decisions under these decision criteria.

Introduction to imprecise probabilities

Preface Introduction Acknowledgements Outline of this Book and Guide to Readers Contributors 1 Desirability 1.1 Introduction 1.2 Reasoning about and with Sets of Desirable Gambles 1.2.1 Rationality Criteria 1.2.2 Assessments Avoiding Partial or Sure Loss 1.2.3 Coherent Sets of Desirable Gambles 1.2.4 Natural Extension 1.2.5 Desirability Relative to Subspaces with Arbitrary Vector Orderings 1.3 Deriving & Combining Sets of Desirable Gambles 1.3.1 Gamble Space Transformations 1.3.2 Derived Coherent Sets of Desirable Gambles 1.3.3 Conditional Sets of Desirable Gambles 1.3.4 Marginal Sets of Desirable Gambles 1.3.5 Combining Sets of Desirable Gambles 1.4 Partial Preference Orders 1.4.1 Strict Preference 1.4.2 Nonstrict Preference 1.4.3 Nonstrict Preferences Implied by Strict Ones 1.4.4 Strict Preferences Implied by Nonstrict Ones 1.5 Maximally Committal Sets of Strictly Desirable Gambles 1.6 Relationships with Other, Nonequivalent Models 1.6.1 Linear Previsions 1.6.2 Credal Sets 1.6.3 To Lower and Upper Previsions 1.6.4 Simplified Variants of Desirability 1.6.5 From Lower Previsions 1.6.6 Conditional Lower Previsions 1.7 Further Reading 2 Lower Previsions 2.1 Introduction 2.2 Coherent Lower Previsions 2.2.1 Avoiding Sure Loss and Coherence 2.2.2 Linear Previsions 2.2.3 Sets of Desirable Gambles 2.2.4 Natural Extension 2.3 Conditional Lower Previsions 2.3.1 Coherence of a Finite Number of Conditional Lower Previsions 2.3.2 Natural Extension of Conditional Lower Previsions 2.3.3 Coherence of an Unconditional and a Conditional Lower Prevision 2.3.4 Updating with the Regular Extension 2.4 Further Reading 2.4.1 The Work of Williams 2.4.2 The Work of Kuznetsov 2.4.3 The Work of Weichselberger 3 Structural Judgements 3.1 Introduction 3.2 Irrelevance and Independence 3.2.1 Epistemic Irrelevance 3.2.2 Epistemic Independence 3.2.3 Envelopes of Independent Precise Models 3.2.4 Strong Independence 3.2.5 The Formalist Approach to Independence 3.3 Invariance 3.3.1 Weak Invariance 3.3.2 Strong Invariance 3.4 Exchangeability. 3.4.1 Representation Theorem for Finite Sequences 3.4.2 Exchangeable Natural Extension 3.4.3 Exchangeable Sequences 3.5 Further Reading 3.5.1 Independence. 3.5.2 Invariance 3.5.3 Exchangeability 4 Special Cases 4.1 Introduction 4.2 Capacities and n-monotonicity 4.3 2-monotone Capacities 4.4 Probability Intervals on Singletons 4.5 1-monotone Capacities 4.5.1 Constructing 1-monotone Capacities 4.5.2 Simple Support Functions 4.5.3 Further Elements 4.6 Possibility Distributions, p-boxes, Clouds and Related Models. 4.6.1 Possibility Distributions 4.6.2 Fuzzy Intervals 4.6.3 Clouds 4.6.4 p-boxes. 4.7 Neighbourhood Models 4.7.1 Pari-mutuel 4.7.2 Odds-ratio 4.7.3 Linear-vacuous 4.7.4 Relations between Neighbourhood Models 4.8 Summary 5 Other Uncertainty Theories Based on Capacities 5.1 Imprecise Probability = Modal Logic + Probability 5.1.1 Boolean Possibility Theory and Modal Logic 5.1.2 A Unifying Framework for Capacity Based Uncertainty Theories 5.2 From Imprecise Probabilities to Belief Functions and Possibility Theory 5.2.1 Random Disjunctive Sets 5.2.2 Numerical Possibility Theory 5.2.3 Overall Picture 5.3 Discrepancies between Uncertainty Theories 5.3.1 Objectivist vs. Subjectivist Standpoints 5.3.2 Discrepancies in Conditioning 5.3.3 Discrepancies in Notions of Independence 5.3.4 Discrepancies in Fusion Operations 5.4 Further Reading 6 Game-Theoretic Probability 6.1 Introduction 6.2 A Law of Large Numbers 6.3 A General Forecasting Protocol 6.4 The Axiom of Continuity 6.5 Doob s Argument 6.6 Limit Theorems of Probability 6.7 Levy s Zero-One Law. 6.8 The Axiom of Continuity Revisited 6.9 Further Reading 7 Statistical Inference 7.1 Background and Introduction 7.1.1 What is Statistical Inference? 7.1.2 (Parametric) Statistical Models and i.i.d. Samples 7.1.3 Basic Tasks and Procedures of Statistical Inference 7.1.4 Some Methodological Distinctions 7.1.5 Examples: Multinomial and Normal Distribution 7.2 Imprecision in Statistics, some General Sources and Motives 7.2.1 Model and Data Imprecision Sensitivity Analysis and Ontological Views on Imprecision 7.2.2 The Robustness Shock, Sensitivity Analysis 7.2.3 Imprecision as a Modelling Tool to Express the Quality of Partial Knowledge 7.2.4 The Law of Decreasing Credibility 7.2.5 Imprecise Sampling Models: Typical Models and Motives 7.3 Some Basic Concepts of Statistical Models Relying on Imprecise Probabilities 7.3.1 Most Common Classes of Models and Notation 7.3.2 Imprecise Parametric Statistical Models and Corresponding i.i.d. Samples. 7.4 Generalized Bayesian Inference 7.4.1 Some Selected Results from Traditional Bayesian Statistics. 7.4.2 Sets of Precise Prior Distributions, Robust Bayesian Inference and the Generalized Bayes Rule 7.4.3 A Closer Exemplary Look at a Popular Class of Models: The IDM and Other Models Based on Sets of Conjugate Priors in Exponential Families. 7.4.4 Some Further Comments and a Brief Look at Other Models for Generalized Bayesian Inference 7.5 Frequentist Statistics with Imprecise Probabilities 7.5.1 The Non-robustness of Classical Frequentist Methods. 7.5.2 (Frequentist) Hypothesis Testing under Imprecise Probability: Huber-Strassen Theory and Extensions 7.5.3 Towards a Frequentist Estimation Theory under Imprecise Probabilities Some Basic Criteria and First Results 7.5.4 A Brief Outlook on Frequentist Methods 7.6 Nonparametric Predictive Inference (NPI) 7.6.1 Overview 7.6.2 Applications and Challenges 7.7 A Brief Sketch of Some Further Approaches and Aspects 7.8 Data Imprecision, Partial Identification 7.8.1 Data Imprecision 7.8.2 Cautious Data Completion 7.8.3 Partial Identification and Observationally Equivalent Models 7.8.4 A Brief Outlook on Some Further Aspects 7.9 Some General Further Reading 7.10 Some General Challenges 8 Decision Making 8.1 Non-Sequential Decision Problems 8.1.1 Choosing From a Set of Gambles 8.1.2 Choice Functions for Coherent Lower Previsions 8.2 Sequential Decision Problems 8.2.1 Static Sequential Solutions: Normal Form 8.2.2 Dynamic Sequential Solutions: Extensive Form 8.3 Examples and Applications 8.3.1 Ellsberg s Paradox 8.3.2 Robust Bayesian Statistics 9 Probabilistic Graphical Models 9.1 Introduction 9.2 Credal Sets 9.2.1 Definition and Relation with Lower Previsions 9.2.2 Marginalisation and Conditioning 9.2.3 Composition. 9.3 Independence 9.4 Credal Networks 9.4.1 Non-Separately Specified Credal Networks 9.5 Computing with Credal Networks 9.5.1 Credal Networks Updating 9.5.2 Modelling and Updating with Missing Data 9.5.3 Algorithms for Credal Networks Updating 9.5.4 Inference on Credal Networks as a Multilinear Programming Task 9.6 Further Reading 10 Classification 10.1 Introduction 10.2 Naive Bayes 10.3 Naive Credal Classifier (NCC) 10.4 Extensions and Developments of the Naive Credal Classifier 10.4.1 Lazy Naive Credal Classifier 10.4.2 Credal Model Averaging 10.4.3 Profile-likelihood Classifiers 10.4.4 Tree-Augmented Networks (TAN) 10.5 Tree-based Credal Classifiers 10.5.1 Uncertainty Measures on Credal Sets. The Maximum Entropy Function. 10.5.2 Obtaining Conditional Probability Intervals with the Imprecise Dirichlet Model 10.5.3 Classification Procedure 10.6 Metrics, Experiments and Software 10.6.1 Software. 10.6.2 Experiments. 11 Stochastic Processes 11.1 The Classical Characterization of Stochastic Processes 11.1.1 Basic Definitions 11.1.2 Precise Markov Chains 11.2 Event-driven Random Processes 11.3 Imprecise Markov Chains 11.3.1 From Precise to Imprecise Markov Chains 11.3.2 Imprecise Markov Models under Epistemic Irrelevance. 11.3.3 Imprecise Markov Models Under Strong Independence. 11.3.4 When Does the Interpretation of Independence (not) Matter? 11.4 Limit Behaviour of Imprecise Markov Chains 11.4.1 Metric Properties of Imprecise Probability Models 11.4.2 The Perron-Frobenius Theorem 11.4.3 Invariant Distributions 11.4.4 Coefficients of Ergodicity 11.4.5 Coefficients of Ergodicity for Imprecise Markov Chains. 11.5 Further Reading 12 Financial Risk Measurement 12.1 Introduction 12.2 Imprecise Previsions and Betting 12.3 Imprecise Previsions and Risk Measurement 12.3.1 Risk Measures as Imprecise Previsions 12.3.2 Coherent Risk Measures 12.3.3 Convex Risk Measures (and Previsions) 12.4 Further Reading 13 Engineering 13.1 Introduction 13.2 Probabilistic Dimensioning in a Simple Example 13.3 Random Set Modelling of the Output Variability 13.4 Sensitivity Analysis 13.5 Hybrid Models. 13.6 Reliability Analysis and Decision Making in Engineering 13.7 Further Reading 14 Reliability and Risk 14.1 Introduction 14.2 Stress-strength Reliability 14.3 Statistical Inference in Reliability and Risk 14.4 NPI in Reliablity and Risk 14.5 Discussion and Research Challenges 15 Elicitation 15.1 Methods and Issues 15.2 Evaluating Imprecise Probability Judgements 15.3 Factors Affecting Elicitation 15.4 Further Reading 16 Computation 16.1 Introduction 16.2 Natural Extension 16.2.1 Conditional Lower Previsions with Arbitrary Domains. 16.2.2 The Walley-Pelessoni-Vicig Algorithm 16.2.3 Choquet Integration 16.2.4 Mobius Inverse 16.2.5 Linear-Vacuous Mixture 16.3 Decision Making 16.3.1 Maximin, Maximax, and Hurwicz 16.3.2 Maximality 16.3.3 E-Admissibility 16.3.4 Interval Dominance References Author index Subject index

Data analysis and robust modelling of the impact of renewable generation on long term security of supply and demand

This paper studies rigorous statistical techniques for modelling long term reliability of demand and supply of electrical power given uncertain variability in the generation and availability of wind power and conventional generation. In doing so, we take care to validate statistical assumptions, using historical observations, as well as our intuition about the actual underlying real-world statistical process. Where assumptions could not be easily validated, we say so explicitly. In particular, we aim to improve existing statistical models through sensitivity analysis of ill-known parameters: we propose models for wind power and conventional generation, estimate their parameters from historical wind power data and conventional availability data, and finally combine them with historical demand data to build a full robust joint time-dependent model of energy not served. Bounds on some useful indices from this model are then calculated, such as expected energy not served, and expected number of continuous outage periods-the latter cannot be estimated from a purely time collapsed model because time collapsed models necessarily do not model correlations across time. We compare our careful model with a naive model that ignores deviations from normality, and find that this results in substantial differences: in this specific study, the naive model overestimates the risk roughly by a factor 2. This justifies the care and caution by which model assumptions must be verified, and the effort that must be taken to adapt the model accordingly.

n-MONOTONE EXACT FUNCTIONALS

We study n-monotone functionals, which constitute a generalisation of n-monotone set functions. We investigate their relation to the concepts of exactness and natural extension, which generalise coherence and natural extension in the behavioural theory of imprecise probabilities. We improve upon a number of results in the literature, and prove among other things a representation result for exact n-monotone functionals in terms of Choquet integrals.

A Comparison of Real-Time Thermal Rating Systems in the U.S. and the U.K.

Real-time thermal rating is a smart-grid technology that allows the rating of electrical conductors to be increased based on local weather conditions. Overhead lines are conventionally given a conservative, constant seasonal rating based on seasonal and regional worst case scenarios rather than actual, say, local hourly weather predictions. This paper provides a report of two pioneering schemes-one in the U.S. and one in the U.K.-where real-time thermal ratings have been applied. Thereby, we demonstrate that observing the local weather conditions in real time leads to additional capacity and safer operation. Second, we critically compare both approaches and discuss their limitations. In doing so, we arrive at novel insights which will inform and improve future real-time thermal rating projects.

Coherent lower previsions in systems modelling: products and aggregation rules

We discuss why coherent lower previsions provide a good uncertainty model for solving generic uncertainty problems involving possibly conflicting expert information. We study various ways of combining expert assessments on different domains, such as natural extension, independent natural extension and the type-I product, as well as on common domains, such as conjunction and disjunction. We provide each of these with a clear interpretation, and we study how they are related. Observing that in combining expert assessments no information is available about the order in which they should be combined, we suggest that the final result should be independent of the order of combination. The rules of combination we study here satisfy this requirement.

Dynamic programming for deterministic discrete-time systems with uncertain gain

We generalise the optimisation technique of dynamic programming for discrete-time systems with an uncertain gain function. We assume that uncertainty about the gain function is described by an imprecise probability model, which generalises the well-known Bayesian, or precise, models. We compare various optimality criteria that can be associated with such a model, and which coincide in the precise case: maximality, robust optimality and maximinity. We show that (only) for the first two an optimal feedback can be constructed by solving a Bellman-like equation.

A robust Bayesian approach to modeling epistemic uncertainty in common-cause failure models

Abstract In a standard Bayesian approach to the alpha-factor model for common-cause failure, a precise Dirichlet prior distribution models epistemic uncertainty in the alpha-factors. This Dirichlet prior is then updated with observed data to obtain a posterior distribution, which forms the basis for further inferences. In this paper, we adapt the imprecise Dirichlet model of Walley to represent epistemic uncertainty in the alpha-factors. In this approach, epistemic uncertainty is expressed more cautiously via lower and upper expectations for each alpha-factor, along with a learning parameter which determines how quickly the model learns from observed data. For this application, we focus on elicitation of the learning parameter, and find that values in the range of 1 to 10 seem reasonable. The approach is compared with Kelly and Atwoods minimally informative Dirichlet prior for the alpha-factor model, which incorporated precise mean values for the alpha-factors, but which was otherwise quite diffuse. Next, we explore the use of a set of Gamma priors to model epistemic uncertainty in the marginal failure rate, expressed via a lower and upper expectation for this rate, again along with a learning parameter. As zero counts are generally less of an issue here, we find that the choice of this learning parameter is less crucial. Finally, we demonstrate how both epistemic uncertainty models can be combined to arrive at lower and upper expectations for all common-cause failure rates. Thereby, we effectively provide a full sensitivity analysis of common-cause failure rates, properly reflecting epistemic uncertainty of the analyst on all levels of the common-cause failure model.

Probability boxes on totally preordered spaces for multivariate modelling

A pair of lower and upper cumulative distribution functions, also called probability box or p-box, is among the most popular models used in imprecise probability theory. They arise naturally in expert elicitation, for instance in cases where bounds are specified on the quantiles of a random variable, or when quantiles are specified only at a finite number of points. Many practical and formal results concerning p-boxes already exist in the literature. In this paper, we provide new efficient tools to construct multivariate p-boxes and develop algorithms to draw inferences from them. For this purpose, we formalise and extend the theory of p-boxes using Walleys behavioural theory of imprecise probabilities, and heavily rely on its notion of natural extension and existing results about independence modeling. In particular, we allow p-boxes to be defined on arbitrary totally preordered spaces, hence thereby also admitting multivariate p-boxes via probability bounds over any collection of nested sets. We focus on the cases of independence (using the factorization property), and of unknown dependence (using the Frechet bounds), and we show that our approach extends the probabilistic arithmetic of Williamson and Downs. Two design problems-a damped oscillator, and a river dike-demonstrate the practical feasibility of our results.

Generalizing the conjunction rule for aggregating conflicting expert opinions

In multiagent expert systems, the conjunction rule is commonly used to combine expert information represented by imprecise probabilities. However, it is well known that this rule cannot be applied in the case of expert conflict. In this article, we propose to resolve expert conflict by means of a second‐order imprecise probability model. The essential idea underlying the model is a notion of behavioral trust. We construct a simple linear programming algorithm for calculating the aggregate. This algorithm explains the proposed aggregation method as a generalized conjunction rule. It also provides an elegant operational interpretation of the imprecise second‐order assessments, and thus overcomes the problems of interpretation that are so common in hierarchical uncertainty models.