Location choice and risk attitude of a decision maker. (January 2017)

• Record Type: Journal Article
• Authors: Berman, Oded; Sanajian, Nima; Wang, Jiamin
• Is Part Of: Omega. Volume 66:Part A(2017:Jan.)
• Page Start: 170
• Page End: 181
• Publication Date: 2017-01
• Subjects: Facility location -- Mixed-integer quadratic programming -- Quadratic assignment problem -- Mean–variance -- Risk-averse -- Risk-seeking; Management -- Periodicals; 658.4005
• DOI: 10.1016/j.omega.2016.03.002
• Languages: English
• ISSNs: 0305-0483

Abstract

Abstract: In this paper we study the effect of a decision maker׳s risk attitude on the median and center problems, two well-known location problems, with uncertain demand in the mean–variance framework. We provide a mathematical programming formulation for both problems in the form of quadratic programming and develop solution procedures. In particular, we consider the vertex and absolute median problems separately, and identify a dominant set for the center problem. Glover׳s linearization method is applied to solve the vertex median problem. We also develop a branch and bound algorithm and a heuristic as the linearization technique takes too long for the vertex median problem on large networks. A computational experiment is conducted to compare the performance of the algorithms. We demonstrate the importance of taking into account the volatility and correlation structure when a location decision is made. The closest assignment property is also discussed for these location problems under the mean–variance objective.