Inverse Optimization: Closed-form Solutions, Geometry and Goodness of fit

Abstract

In classical inverse linear optimization, one assumes a given solution is a candidate to be optimal. Real data is imperfect and noisy, so there is no guarantee this assumption is satisfied. Inspired by regression, this paper presents a unified framework for cost function estimation in linear optimization comprising a general inverse optimization model and a corresponding goodness-of-fit metric. Although our inverse optimization model is nonconvex, we derive a closed-form solution and present the geometric intuition. Our goodness-of-fit metric, $\rho$, the coefficient of complementarity, has similar properties to $R^2$ from regression and is quasiconvex in the input data, leading to an intuitive geometric interpretation. While $\rho$ is computable in polynomial-time, we derive a lower bound that possesses the same properties, is tight for several important model variations, and is even easier to compute. We demonstrate the application of our framework for model estimation and evaluation in production planning and cancer therapy.