Original: Bayesian Risk Markov Decision Processes
Revised: Bayesian Risk Markov Decision Processes

Original: Anonymous Author(s)
Revised: Anonymous Author(s)

Original: AffiliationAddress email
Revised: AffiliationAddress email

Original: Abstract
Revised: Abstract

Original: We consider finite-horizon Markov Decision Processes where parameters, such astransition probabilities, are unknown and estimated from data.
Revised: We consider finite-horizon Markov Decision Processes where parameters, such astransition probabilities, are unknown and estimated from data.

Original: The popular distributionally robust approach to addressing the parameter uncertainty can sometimesbe overly conservative.
Revised: The popular distributionally robust approach to addressing the parameter uncertainty can sometimesbe overly conservative.

Original: In this paper, we propose a new formulation, Bayesianrisk Markov decision process (BR-MDP), to address parameter uncertainty in
Revised: In this paper, we propose a new formulation, Bayesianrisk Markov decision process (BR-MDP), to address parameter uncertainty in

Original: MDPs, where a risk functional is applied in nested form to the expected total costwith respect to the Bayesian posterior distributions of the unknown parameters.
Revised: MDPs, where a risk functional is applied in nested form to the expected total costwith respect to the Bayesian posterior distributions of the unknown parameters.

Original: The proposed formulation provides more flexible risk attitudes towards parameteruncertainty and takes into account the availability of data in future time stages.
Revised: The proposed formulation provides more flexible risk attitudes towards parameteruncertainty and takes into account the availability of data in future time stages.

Original: To solve the proposed formulation with the conditional value-at-risk (CVaR) riskfunctional, we propose an efficient approximation algorithm by deriving an analytical approximation of the value function and utilizing the convexity of CVaR.
Revised: To solve the proposed formulation with the conditional value-at-risk (CVaR) riskfunctional, we propose an efficient approximation algorithm by deriving an analytical approximation of the value function and utilizing the convexity of CVaR.

Original: Wedemonstrate the empirical performance of the BR-MDP formulation and proposedalgorithms on a gambler’s betting problem and an inventory control problem.
Revised: Wedemonstrate the empirical performance of the BR-MDP formulation and proposedalgorithms on a gambler’s betting problem and an inventory control problem.

Original:  Introduction
Revised:  Introduction

Original: Markov decision process (MDP) is a paradigm for modeling sequential decision making underuncertainty.
Revised: Markov decision process (MDP) is a paradigm for modeling sequential decision making underuncertainty.

Original: From a modeling perspective, some parameters of MDPs are unknown and need tobe estimated from data.
Revised: From a modeling perspective, some parameters of MDPs are unknown and need tobe estimated from data.

Original: In this paper, we consider MDPs where transition probability and costparameters are not known.
Revised: In this paper, we consider MDPs where transition probability and costparameters are not known.

Original: A natural question would be: given a finite and probably small set of data,how does a decision maker find an “optimal” policy that minimizes the expected total cost under theuncertain transition probability and cost parameters?
Revised: A natural question would be: given a finite and probably small set of data,how does a decision maker find an “optimal” policy that minimizes the expected total cost under theuncertain transition probability and cost parameters?

Original: A possible approach that mitigates the parameter uncertainty (also known as epistemic uncertainty)lies in the framework of distributionally robust MDPs (DR-MDPs, [1]).
Revised: A possible approach that mitigates the parameter uncertainty (also known as epistemic uncertainty)lies in the framework of distributionally robust MDPs (DR-MDPs, [1]).

Original: DR-MDP regards theunknown parameters as random variables and assumes the associated distributions belong to anambiguity set that is constructed from the data.
Revised: DR-MDP regards theunknown parameters as random variables and assumes the associated distributions belong to anambiguity set that is constructed from the data.

Original: DR-MDP then finds the optimal policy that minimizesthe expected total cost with the parameters following the most adversarial distribution within theambiguity set.
Revised: DR-MDP then finds the optimal policy that minimizesthe expected total cost with the parameters following the most adversarial distribution within theambiguity set.

Original: However, distributionally robust approaches might yield overly conservative solutionsthat perform poorly for scenarios that are more likely to happen than the worst case.
Revised: However, distributionally robust approaches might yield overly conservative solutionsthat perform poorly for scenarios that are more likely to happen than the worst case.

Original: Moreover, aspointed out in [2], DR-MDP does not explicitly specify the dynamics of the considered problem inthe sense that the distribution of the unknown parameters does not depend on realizations of the dataprocess, and therefore is generally not time consistent (we refer the reader to [2] for details on timeconsistency).
Revised: Moreover, aspointed out in [2], DR-MDP does not explicitly specify the dynamics of the considered problem inthe sense that the distribution of the unknown parameters does not depend on realizations of the dataprocess, and therefore is generally not time consistent (we refer the reader to [2] for details on timeconsistency).

Original: In view of the aforementioned drawbacks of DR-MDP, we propose a new formulation named as
Revised: In view of the aforementioned drawbacks of DR-MDP, we propose a new formulation named as

Original: Bayesian risk MDP (BR-MDP), to address the parameter uncertainty in MDPs.
Revised: Bayesian risk MDP (BR-MDP), to address the parameter uncertainty in MDPs.

Original: BR-MDP takesa similar perspective as Bayesian risk optimization (BRO), which is a new framework proposedby [3, 4] for static (single stage) optimization.
Revised: BR-MDP takesa similar perspective as Bayesian risk optimization (BRO), which is a new framework proposedby [3, 4] for static (single stage) optimization.

Original: They quantify the parameter uncertainty using a
Revised: They quantify the parameter uncertainty using a

Original: Bayesian posterior distribution to replace the ambiguity set in DRO, and impose a risk functional onthe objective function with respect to the posterior distribution.
Revised: Bayesian posterior distribution to replace the ambiguity set in DRO, and impose a risk functional onthe objective function with respect to the posterior distribution.

Original: To extend to BRO to MDPs and alsoensure time consistency, we propose to use a nested risk functional taken with respect to the processof Bayesian posterior distributions, where the posterior is updated with all realizations of randomnessup to each time stage.
Revised: To extend to BRO to MDPs and alsoensure time consistency, we propose to use a nested risk functional taken with respect to the processof Bayesian posterior distributions, where the posterior is updated with all realizations of randomnessup to each time stage.

Original: We show the proposed BR-MDP formulation is time consistent, and derivethe corresponding dynamic programming equation with an augmented state that incorporates theposterior information.
Revised: We show the proposed BR-MDP formulation is time consistent, and derivethe corresponding dynamic programming equation with an augmented state that incorporates theposterior information.

Original: The proposed framework works for an offline planning problem, where thedecision maker, after loaded with the learned optimal policy and put to the real environment, acts likeit adapts to the environment.
Revised: The proposed framework works for an offline planning problem, where thedecision maker, after loaded with the learned optimal policy and put to the real environment, acts likeit adapts to the environment.

Original: To solve the proposed BR-MDP formulation, we develop an efficient algorithm by drawing aconnection between BR-MDP and partially observable MDP (POMDP) and utilizing the convexityof CVaR.
Revised: To solve the proposed BR-MDP formulation, we develop an efficient algorithm by drawing aconnection between BR-MDP and partially observable MDP (POMDP) and utilizing the convexityof CVaR.

Original: The connection between BR-MDP and POMDP is motivated by the observation that theposterior distribution in BR-MDP is exactly like the belief state (which is the posterior distributionof the unobserved state given the history of observations) in a POMDP.
Revised: The connection between BR-MDP and POMDP is motivated by the observation that theposterior distribution in BR-MDP is exactly like the belief state (which is the posterior distributionof the unobserved state given the history of observations) in a POMDP.

Original: The optimal value functionof a POMDP (in a minimization problem) can be expressed as an lower envelope of a set of linearfunctions (also called α -functions, see [5]).
Revised: The optimal value functionof a POMDP (in a minimization problem) can be expressed as an lower envelope of a set of linearfunctions (also called α -functions, see [5]).

Original: We show a similar α -function representation of thevalue function for BR-MDP, where the number of α -functions grow exponentially over time.
Revised: We show a similar α -function representation of thevalue function for BR-MDP, where the number of α -functions grow exponentially over time.

Original: Tohave computationally feasible algorithm, we further derive an analytical approximation of the valuefunction that keeps a constant number of α -functions over time.
Revised: Tohave computationally feasible algorithm, we further derive an analytical approximation of the valuefunction that keeps a constant number of α -functions over time.

Original: To summarize, the contributions of this paper are two folds.
Revised: To summarize, the contributions of this paper are two folds.

Original: First, we propose a new time-consistentformulation BR-MDP to handle the parameter uncertainty in MDPs.
Revised: First, we propose a new time-consistentformulation BR-MDP to handle the parameter uncertainty in MDPs.

Original: Second, we propose an efficientalgorithm to solve the proposed formulation with a CVaR risk functional, and the algorithm can beeasily extended to other coherent risk measures (see [6] for an overview on coherent risk measures).
Revised: Second, we propose an efficientalgorithm to solve the proposed formulation with a CVaR risk functional, and the algorithm can beeasily extended to other coherent risk measures (see [6] for an overview on coherent risk measures).

Original:  Related Literature
Revised:  Related Literature

Original: One possible approach that mitigates the parameter uncertainty in MDPs lies in the framework ofrobust MDPs (e.g. [7, 8, 9, 10, 11]).
Revised: One possible approach that mitigates the parameter uncertainty in MDPs lies in the framework ofrobust MDPs (e.g. [7, 8, 9, 10, 11]).

Original: In robust MDPs, parameters are usually assumed to belong to aknown set referred to as the ambiguity set, and the optimal decisions are chosen according to theirperformance under the worst possible parameter realizations within the ambiguity set.
Revised: In robust MDPs, parameters are usually assumed to belong to aknown set referred to as the ambiguity set, and the optimal decisions are chosen according to theirperformance under the worst possible parameter realizations within the ambiguity set.

Original: [1] furtherextends the distributionally robust approach to MDPs (DR-MDPs) with parameter uncertainty and utilizes the probabilistic information of the unknown parameters.
Revised: [1] furtherextends the distributionally robust approach to MDPs (DR-MDPs) with parameter uncertainty and utilizes the probabilistic information of the unknown parameters.

Original: Different from all the aforementionedworks, we take a Bayesian perspective in the BR-MDP formulation and seek a trade-off between theposterior expected performance and the robustness in the actual performance.
Revised: Different from all the aforementionedworks, we take a Bayesian perspective in the BR-MDP formulation and seek a trade-off between theposterior expected performance and the robustness in the actual performance.

Original: It is worth noting that applying the Bayesian approach to MDPs has been considered in [12], whichproposes a Bayes-adaptive MDP (BAMDP) formulation with an augmented state composed of theunderlying MDP state and the posterior distribution of the unknown parameters.
Revised: It is worth noting that applying the Bayesian approach to MDPs has been considered in [12], whichproposes a Bayes-adaptive MDP (BAMDP) formulation with an augmented state composed of theunderlying MDP state and the posterior distribution of the unknown parameters.

Original: In BAMDP, eachtransition probability is treated as an unknown parameter associated with a Dirichlet prior distribution,and an expectation is taken with respect to the Dirichlet posterior on the expected total cost.
Revised: In BAMDP, eachtransition probability is treated as an unknown parameter associated with a Dirichlet prior distribution,and an expectation is taken with respect to the Dirichlet posterior on the expected total cost.

Original: Incontrast, our BR-MDP formulation imposes a risk functional, taken with respect to the posteriordistribution (which could be chosen as Dirichlet distribution but is more general), on the expectedtotal cost in a nested form.
Revised: Incontrast, our BR-MDP formulation imposes a risk functional, taken with respect to the posteriordistribution (which could be chosen as Dirichlet distribution but is more general), on the expectedtotal cost in a nested form.

Original: On a related note, risk-averse decision making has been widely studied in
Revised: On a related note, risk-averse decision making has been widely studied in

Original: MDPs.
Revised: MDPs.

Original: Apart from the robust MDPs that address the parameter uncertainty, risk-sensitive MDPs (e.g.[13, 14, 15, 16]) address the intrinsic uncertainty (also known as aleatoric uncertainty) that is dueto the inherent stochasticity of the underlying MDP, by replacing the risk-neutral expectation (withrespect to the state transition) by general risk measures, such as conditional value-at-risk (CVaR, see[17]).
Revised: Apart from the robust MDPs that address the parameter uncertainty, risk-sensitive MDPs (e.g.[13, 14, 15, 16]) address the intrinsic uncertainty (also known as aleatoric uncertainty) that is dueto the inherent stochasticity of the underlying MDP, by replacing the risk-neutral expectation (withrespect to the state transition) by general risk measures, such as conditional value-at-risk (CVaR, see[17]).

Original: Most of the existing literature on risk-sensitive MDPs consider a static risk functional appliedto the total return (e.g. [18, 19, 20, 21]).
Revised: Most of the existing literature on risk-sensitive MDPs consider a static risk functional appliedto the total return (e.g. [18, 19, 20, 21]).

Original: There are two recent works closely related to ours, both ofwhich apply a risk functional to BAMDP.
Revised: There are two recent works closely related to ours, both ofwhich apply a risk functional to BAMDP.

Original: Specifically, [22] formulates the risk-sensitive planningproblem as a two-player zero-sum game and then applies a static risk functional to the expected totalcost, which adds robustness to the incorrect priors over model parameters; [23] optimizes a CVaR riskfunctional over the total cost and simultaneously addresses both epistemic and aleatoric uncertainty.
Revised: Specifically, [22] formulates the risk-sensitive planningproblem as a two-player zero-sum game and then applies a static risk functional to the expected totalcost, which adds robustness to the incorrect priors over model parameters; [23] optimizes a CVaR riskfunctional over the total cost and simultaneously addresses both epistemic and aleatoric uncertainty.

Original: In contrast, we consider a nested risk functional due to the time consistency consideration discussedin previous section.
Revised: In contrast, we consider a nested risk functional due to the time consistency consideration discussedin previous section.

Original: Also note that our problem setting relies on partial knowledge of the model (state transition equation, cost function etc.) and works in an offline planning setting with no interactionwith the environment, and hence is different from Bayesian reinforcement learning (e.g. [24, 25]).
Revised: Also note that our problem setting relies on partial knowledge of the model (state transition equation, cost function etc.) and works in an offline planning setting with no interactionwith the environment, and hence is different from Bayesian reinforcement learning (e.g. [24, 25]).

Original:  Preliminaries and Problem Formulation3.1 Preliminaries: BRO and CVaR
Revised:  Preliminaries and Problem Formulation3.1 Preliminaries: BRO and CVaR

Original: Bayesian risk optimization (BRO, see [3, 4]) considers a general stochastic optimization problem:min x E P c
Revised: Bayesian risk optimization (BRO, see [3, 4]) considers a general stochastic optimization problem:min x E P c

Original: [ h ( x, ξ )] , where x is the decision vector, ξ is a random vector with distribution P c , h isa deterministic cost function.
Revised: [ h ( x, ξ )] , where x is the decision vector, ξ is a random vector with distribution P c , h isa deterministic cost function.

Original: The true distribution P c is rarely known in practice and often needsto be estimated from data.
Revised: The true distribution P c is rarely known in practice and often needsto be estimated from data.

Original: It is very likely that the solution obtained from solving an estimatedmodel performs badly under the true model.
Revised: It is very likely that the solution obtained from solving an estimatedmodel performs badly under the true model.

Original: To avoid such a scenario, BRO seeks robustness inthe actual performance by imposing a risk functional to the expected cost function and solving thefollowing problem: min x ρ P n { E P θ [ h ( x, ξ )] } , where ρ is a risk functional, and P n is the posteriordistribution of θ after observing n data points.
Revised: To avoid such a scenario, BRO seeks robustness inthe actual performance by imposing a risk functional to the expected cost function and solving thefollowing problem: min x ρ P n { E P θ [ h ( x, ξ )] } , where ρ is a risk functional, and P n is the posteriordistribution of θ after observing n data points.

Original: It is assumed that the unknown distribution P c belongsto a parametric family { P θ | θ ∈ Θ } , where Θ is the parameter space and θ c ∈ Θ is the unknown trueparameter value.
Revised: It is assumed that the unknown distribution P c belongsto a parametric family { P θ | θ ∈ Θ } , where Θ is the parameter space and θ c ∈ Θ is the unknown trueparameter value.

Original: Taking a Bayesian perspective, θ c is viewed as a realization of a random vector θ .
Revised: Taking a Bayesian perspective, θ c is viewed as a realization of a random vector θ .

Original: In particular, conditional value-at-risk (CVaR), a common coherent risk measure (see [6]), is considered for the risk functional.
Revised: In particular, conditional value-at-risk (CVaR), a common coherent risk measure (see [6]), is considered for the risk functional.

Original: For a random variable X defined on a probability space (Ω , F , P ) ,value-at-risk VaR α ( X ) is defined as the α -quantile of X , i.e., VaR α ( X ) :
Revised: For a random variable X defined on a probability space (Ω , F , P ) ,value-at-risk VaR α ( X ) is defined as the α -quantile of X , i.e., VaR α ( X ) :

Original: = inf { t : P ( X ≤ t ) ≥ α } ,where the confidence level α ∈ (0 , 1) .
Revised: = inf { t : P ( X ≤ t ) ≥ α } ,where the confidence level α ∈ (0 , 1) .

Original: Assuming there is no probability atom at VaR α ( X ) , CVaRat confidence level α is defined as the mean of the α -tail distribution of X , i.e., CVaR α ( X ) =
Revised: Assuming there is no probability atom at VaR α ( X ) , CVaRat confidence level α is defined as the mean of the α -tail distribution of X , i.e., CVaR α ( X ) =

Original: 107 E [ X | X ≥ VaR α ( X )] .
Revised: 107 E [ X | X ≥ VaR α ( X )] .

Original: It is shown in [17] that CVaR can be written as a convex optimization:
Revised: It is shown in [17] that CVaR can be written as a convex optimization:

Original: [Equation]
Revised: [Equation]

Original: where ( · ) + stands for max(0 , · ) .
Revised: where ( · ) + stands for max(0 , · ) .

Original: 3.2 New formulation: Bayesian risk MDPs (BR-MDPs)
Revised: 3.2 New formulation: Bayesian risk MDPs (BR-MDPs)

Original: Consider a finite-horizon MDP defined as ( S , A , P , C ) , where S is the state space, A is the actionspace, P is the transition probability with P ( s t +1 | s t , a t ) denoting the probability of transitioning tostate s t +1 from state s t when action a t is taken, C is the cost function with C t ( s t , a t , s t +1 ) denotingthe cost at time stage t when action a t is taken and state transitions from s t to s t +1 .
Revised: Consider a finite-horizon MDP defined as ( S , A , P , C ) , where S is the state space, A is the actionspace, P is the transition probability with P ( s t +1 | s t , a t ) denoting the probability of transitioning tostate s t +1 from state s t when action a t is taken, C is the cost function with C t ( s t , a t , s t +1 ) denotingthe cost at time stage t when action a t is taken and state transitions from s t to s t +1 .

Original: A Markoviandeterministic policy π is a function mapping from S to A .
Revised: A Markoviandeterministic policy π is a function mapping from S to A .

Original: Given an initial state s 0 , the goal is tofind an optimal policy that minimizes the expected total cost: min
Revised: Given an initial state s 0 , the goal is tofind an optimal policy that minimizes the expected total cost: min

Original: [Equation]
Revised: [Equation]

Original: where E π, P , C is the expectation with policy π when the transition probability is P and the cost is C .
Revised: where E π, P , C is the expectation with policy π when the transition probability is P and the cost is C .

Original: In practice, P and C are often unknown and estimated from data.
Revised: In practice, P and C are often unknown and estimated from data.

Original: To deal with the parameter uncertainty in MDPs, we propose a new formulation, Bayesian risk
Revised: To deal with the parameter uncertainty in MDPs, we propose a new formulation, Bayesian risk

Original: MDP (BR-MDP), by extending BRO in static optimization to MDPs.
Revised: MDP (BR-MDP), by extending BRO in static optimization to MDPs.

Original: We assume the state transitionis specified by the state equation s t +1 =
Revised: We assume the state transitionis specified by the state equation s t +1 =

Original: g t ( s t , a t , ξ t ) with a known transition function g t , whichinvolves state s t ∈ S ⊆
Revised: g t ( s t , a t , ξ t ) with a known transition function g t , whichinvolves state s t ∈ S ⊆

Original: R s , action a t ∈ A ⊆ R a , and randomness ξ t ∈ Ξ ⊆ R k , wheres, a, k are the dimensions of the state, action, and randomness, respectively.
Revised: R s , action a t ∈ A ⊆ R a , and randomness ξ t ∈ Ξ ⊆ R k , wheres, a, k are the dimensions of the state, action, and randomness, respectively.

Original: We assume { ξ t , t =0 , · · · , T − 1 } are independent and identically distributed (i.i.d.).
Revised: We assume { ξ t , t =0 , · · · , T − 1 } are independent and identically distributed (i.i.d.).

Original: Note that the state equationtogether with the distribution of ξ t uniquely determines the transition probability of the MDP, i.e.,
Revised: Note that the state equationtogether with the distribution of ξ t uniquely determines the transition probability of the MDP, i.e.,

Original: P ( s t +1 ∈ S ′
Revised: P ( s t +1 ∈ S ′

Original: | s t , a t ) =
Revised: | s t , a t ) =

Original: P ( { ξ t ∈ Ξ : g t ( s t , a t , ξ t )
Revised: P ( { ξ t ∈ Ξ : g t ( s t , a t , ξ t )

Original: ∈ S ′ }| s t , a t ) , where S ′ is a measurable set in S .
Revised: ∈ S ′ }| s t , a t ) , where S ′ is a measurable set in S .

Original: We refer the readers to Chapter 3.5 in [26] for the equivalence between stochastic optimal control and
Revised: We refer the readers to Chapter 3.5 in [26] for the equivalence between stochastic optimal control and

Original: MDP formulation.
Revised: MDP formulation.

Original: We use the representation of state equations instead of transition probabilities in
Revised: We use the representation of state equations instead of transition probabilities in

Original: MDPs, for the purpose of decoupling the randomness and the policy, leading to a cleaner formulationin the nested form.
Revised: MDPs, for the purpose of decoupling the randomness and the policy, leading to a cleaner formulationin the nested form.

Original: We assume the distribution of ξ t , denoted by f ( · ; θ c ) , belongs to a parametricfamily { f ( · ; θ ) | θ ∈ Θ } , where Θ ⊆ R d is the parameter space, d is the dimension of the parameterθ , and θ c ∈ Θ is the true but unknown parameter value.
Revised: We assume the distribution of ξ t , denoted by f ( · ; θ c ) , belongs to a parametricfamily { f ( · ; θ ) | θ ∈ Θ } , where Θ ⊆ R d is the parameter space, d is the dimension of the parameterθ , and θ c ∈ Θ is the true but unknown parameter value.

Original: The parametric assumption is satisfied inmany problems; for example, in inventory control the customer demand is often assumed to followa Poisson process (see [27]) with unknown arrival rate.
Revised: The parametric assumption is satisfied inmany problems; for example, in inventory control the customer demand is often assumed to followa Poisson process (see [27]) with unknown arrival rate.

Original: The cost at time stage t is assumed to be afunction of state s t , action a t , and randomness ξ t , i.e., C t ( s t , a t , ξ t ) .
Revised: The cost at time stage t is assumed to be afunction of state s t , action a t , and randomness ξ t , i.e., C t ( s t , a t , ξ t ) .

Original: We start with a prior distribution µ 0 over the parameter space Θ , which captures the initial uncertainty 136 in the parameter estimate from an initial data set and can also incorporate expert opinion.
Revised: We start with a prior distribution µ 0 over the parameter space Θ , which captures the initial uncertainty 136 in the parameter estimate from an initial data set and can also incorporate expert opinion.

Original: Then givenan observed realization of the data process, we update the posterior distribution µ t according to the 138 Bayes’ rule.
Revised: Then givenan observed realization of the data process, we update the posterior distribution µ t according to the 138 Bayes’ rule.

Original: Let the policy be a sequence of mappings from state s t and posterior µ t to the actionspace, i.e., π = { π t |
Revised: Let the policy be a sequence of mappings from state s t and posterior µ t to the actionspace, i.e., π = { π t |

Original: π t : S × M t → A , t = 0 , · · · , T − 1 } , where M t is the space of posterior 140 distributions at time stage t .
Revised: π t : S × M t → A , t = 0 , · · · , T − 1 } , where M t is the space of posterior 140 distributions at time stage t .

Original: Now we present the BR-MDP formulation below.
Revised: Now we present the BR-MDP formulation below.

Original: [Equation]
Revised: [Equation]

Original: where a t = π t ( s t , µ t ) , θ t is a random vector following distribution µ t , E f ( · ; θ t ) denotes the expectation with respect to ξ t ∼ f ( · ; θ t ) conditional on θ t , and ρ µ t denotes a risk functional with respectto θ t ∼ µ t .
Revised: where a t = π t ( s t , µ t ) , θ t is a random vector following distribution µ t , E f ( · ; θ t ) denotes the expectation with respect to ξ t ∼ f ( · ; θ t ) conditional on θ t , and ρ µ t denotes a risk functional with respectto θ t ∼ µ t .

Original: We assume the last-stage cost only depends on the state, hence denoted by C T ( s T ) .
Revised: We assume the last-stage cost only depends on the state, hence denoted by C T ( s T ) .

Original: Equation (3) is the transition of the state s t , and without loss of generality we assume the initial states 0 takes a deterministic value.
Revised: Equation (3) is the transition of the state s t , and without loss of generality we assume the initial states 0 takes a deterministic value.

Original: Equation (4) is the updating of the posterior µ t given the prior µ 0 .
Revised: Equation (4) is the updating of the posterior µ t given the prior µ 0 .

Original: 3.3 Time consistency and dynamic programming
Revised: 3.3 Time consistency and dynamic programming

Original: It is important to note that the BR-MDP formulation (2) takes a nested form of the risk functional.
Revised: It is important to note that the BR-MDP formulation (2) takes a nested form of the risk functional.

Original: Aprimary motivation for considering such nested risk functional is the issue of time consistency (see[28, 29, 30, 2]), which means that the optimal policy solved at time stage 0 is still optimal for anyremaining time stage t ≥ 1 with respect to the conditional risk functional, even when the realizationof the randomness ξ t is revealed up to that time stage.
Revised: Aprimary motivation for considering such nested risk functional is the issue of time consistency (see[28, 29, 30, 2]), which means that the optimal policy solved at time stage 0 is still optimal for anyremaining time stage t ≥ 1 with respect to the conditional risk functional, even when the realizationof the randomness ξ t is revealed up to that time stage.

Original: In contrast, optimizing a static risk functional can lead to “time-inconsistent” behavior, where theoptimal policy at the current time stage can become suboptimal in the next time stage simply becausea new piece of information is revealed (see [28, 29]).
Revised: In contrast, optimizing a static risk functional can lead to “time-inconsistent” behavior, where theoptimal policy at the current time stage can become suboptimal in the next time stage simply becausea new piece of information is revealed (see [28, 29]).

Original: Another drawback of the static formulationfor a general risk functional is the lack of dynamic programming equation.
Revised: Another drawback of the static formulationfor a general risk functional is the lack of dynamic programming equation.

Original: In particular, [2] pointsout that for the static formulation, the derivation of the dynamic programming equation is based onthe interchangeability principle and the decomposability property of the risk functional, where suchdecomposability property holds only for expectation and max-type risk functionals.
Revised: In particular, [2] pointsout that for the static formulation, the derivation of the dynamic programming equation is based onthe interchangeability principle and the decomposability property of the risk functional, where suchdecomposability property holds only for expectation and max-type risk functionals.

Original: On the otherhand, for our nested formulation (2), the corresponding dynamic programming equation is easilyobtained as follows:
Revised: On the otherhand, for our nested formulation (2), the corresponding dynamic programming equation is easilyobtained as follows:

Original: [Equation]
Revised: [Equation]

Original: [Equation]
Revised: [Equation]

Original: where s t and µ t follow equation (3) and (4), respectively.
Revised: where s t and µ t follow equation (3) and (4), respectively.

Original: Therefore, our BR-MDP formulationprovides a time-consistent risk-averse framework to deal with epistemic uncertainty in MDPs.
Revised: Therefore, our BR-MDP formulationprovides a time-consistent risk-averse framework to deal with epistemic uncertainty in MDPs.

Original: Theexact dynamic programming is summarized in Algorithm 1, for benchmark purpose.
Revised: Theexact dynamic programming is summarized in Algorithm 1, for benchmark purpose.

Original: input : finite horizon T , initial state s 0 , prior distribution µ 0 ; output : optimal value function V ∗ 0 ( s 0 , µ 0 ) and corresponding optimal policy π ∗ ;
Revised: input : finite horizon T , initial state s 0 , prior distribution µ 0 ; output : optimal value function V ∗ 0 ( s 0 , µ 0 ) and corresponding optimal policy π ∗ ;

Original: set V ∗ T ( s T , µ T ) =
Revised: set V ∗ T ( s T , µ T ) =

Original: C T ( s T ) , ∀ ( s T , µ T ) ∈ S
Revised: C T ( s T ) , ∀ ( s T , µ T ) ∈ S

Original: × M t ; for t ← T − 1 to 0 do for each ( s t , µ t ) ∈ S
Revised: × M t ; for t ← T − 1 to 0 do for each ( s t , µ t ) ∈ S

Original: × M t do solve dynamic programming equation (5); set π ∗ t ( s t , µ t ) :
Revised: × M t do solve dynamic programming equation (5); set π ∗ t ( s t , µ t ) :

Original: = a ∗ t , where a ∗ t attains V ∗ t ( s t , µ t ) ; end end
Revised: = a ∗ t , where a ∗ t attains V ∗ t ( s t , µ t ) ; end end

Original:  An Analytical Approximate Solution to BR-MDPs
Revised:  An Analytical Approximate Solution to BR-MDPs

Original: Although the exact dynamic programming works for a general risk functional, there are two challengesto carry it out.
Revised: Although the exact dynamic programming works for a general risk functional, there are two challengesto carry it out.

Original: First, the expectation and the risk functional are generally impossible to computeanalytically and estimation by (nested) Monte Carlo simulation can be computationally expensive.
Revised: First, the expectation and the risk functional are generally impossible to computeanalytically and estimation by (nested) Monte Carlo simulation can be computationally expensive.

Original: Second, the update of the posterior distribution µ t does not have a closed form in general and often results in an infinite-dimensional posterior.
Revised: Second, the update of the posterior distribution µ t does not have a closed form in general and often results in an infinite-dimensional posterior.

Original: We circumvent the latter difficulty by using conjugatefamilies of distributions (see Chapter 5 in [31]), where the posterior distribution falls into the sameparametric family as the prior distribution, and thus maintain the dimensionality of the posterior to bethe finite (and often small) dimension of the parameter space of the conjugate distribution.
Revised: We circumvent the latter difficulty by using conjugatefamilies of distributions (see Chapter 5 in [31]), where the posterior distribution falls into the sameparametric family as the prior distribution, and thus maintain the dimensionality of the posterior to bethe finite (and often small) dimension of the parameter space of the conjugate distribution.

Original: However,the posterior parameters usually take continuous values and hence BR-MDP with the augmented state( s, µ ) is a continuous-state MDP.
Revised: However,the posterior parameters usually take continuous values and hence BR-MDP with the augmented state( s, µ ) is a continuous-state MDP.

Original: We note that this continuous-state MDP resembles a belief-MDP,which is the equivalent transformation of a POMDP by regarding the posterior distribution of theunobserved state as a (belief) state (see [32]), and our posterior distribution µ t is just like the beliefstate in POMDP in the sense that both are posterior distributions updated via Baye’s rule.
Revised: We note that this continuous-state MDP resembles a belief-MDP,which is the equivalent transformation of a POMDP by regarding the posterior distribution of theunobserved state as a (belief) state (see [32]), and our posterior distribution µ t is just like the beliefstate in POMDP in the sense that both are posterior distributions updated via Baye’s rule.

Original: Thisobservation motivates our algorithm development in this section.
Revised: Thisobservation motivates our algorithm development in this section.

Original: Specifically, we derive an efficient approximation algorithm for the BR-MDP with the risk functional
Revised: Specifically, we derive an efficient approximation algorithm for the BR-MDP with the risk functional

Original: CVaR.
Revised: CVaR.

Original: The main idea is that for CVaR, once we know the variable u in (1), it is reduced to anexpectation of a convex function.
Revised: The main idea is that for CVaR, once we know the variable u in (1), it is reduced to anexpectation of a convex function.

Original: If there is a way to approximate the value function for a given u , wecan utilize the convexity of CVaR and apply gradient descent to solve for u .
Revised: If there is a way to approximate the value function for a given u , wecan utilize the convexity of CVaR and apply gradient descent to solve for u .

Original: Hence, we proceed byfirst deriving the approximate value function for a fixed u and time stage.
Revised: Hence, we proceed byfirst deriving the approximate value function for a fixed u and time stage.

Original: Similar to POMDP whosevalue function can be represented by a set of so-called α -functions, we first show an α -functionrepresentation of the value function in BR-MDP, and then derive the approximate value functionbased on this representation.
Revised: Similar to POMDP whosevalue function can be represented by a set of so-called α -functions, we first show an α -functionrepresentation of the value function in BR-MDP, and then derive the approximate value functionbased on this representation.

Original: All proofs of the propositions/theorems below can be found in Appendix.
Revised: All proofs of the propositions/theorems below can be found in Appendix.

Original: 4.1 α -function representation of the value function
Revised: 4.1 α -function representation of the value function

Original: By the definition of CVaR (see (1)) with a confidence level α , we can rewrite the dynamic program- 191 ming equation (5) for the BR-MDP as:
Revised: By the definition of CVaR (see (1)) with a confidence level α , we can rewrite the dynamic program- 191 ming equation (5) for the BR-MDP as:

Original: [Equation]
Revised: [Equation]

Original: where we assume that ξ and θ take continuous values, and the integration can be numericallyapproximated by Monte Carlo sampling.
Revised: where we assume that ξ and θ take continuous values, and the integration can be numericallyapproximated by Monte Carlo sampling.

Original: If ξ and θ are discrete, the integral can be replaced bysummation.
Revised: If ξ and θ are discrete, the integral can be replaced bysummation.

Original: The next proposition shows that the optimal value function corresponds to the lowerenvelope of a set of α -functions.
Revised: The next proposition shows that the optimal value function corresponds to the lowerenvelope of a set of α -functions.

Original: Proposition 4.1 ( α -function representation) .
Revised: Proposition 4.1 ( α -function representation) .

Original: The optimal value function in (6) can be represented bythe lower envelope of a set of α -functions denoted by Γ t = { α t } a t ∈A , i.e.,
Revised: The optimal value function in (6) can be represented bythe lower envelope of a set of α -functions denoted by Γ t = { α t } a t ∈A , i.e.,

Original: [Equation]
Revised: [Equation]

Original: where α t ( s t , θ ) =
Revised: where α t ( s t , θ ) =

Original: u t + 1 1 − α (cid:16)(cid:82)
Revised: u t + 1 1 − α (cid:16)(cid:82)

Original: Ξ f ( ξ ; θ ) (cid:16) C t ( s t , a t , ξ ) + min α t +1 (cid:82) Θ α
Revised: Ξ f ( ξ ; θ ) (cid:16) C t ( s t , a t , ξ ) + min α t +1 (cid:82) Θ α

Original: [Equation]
Revised: [Equation]

Original: − u
Revised: − u

Original: [Equation]
Revised: [Equation]

Original: + .
Revised: + .

Original: Note that there is a major distinction between the α -function representations of a POMDP and a
Revised: Note that there is a major distinction between the α -function representations of a POMDP and a

Original: BR-MDP: the optimal value function in the risk-neutral POMDP is piecewise linear and convex inthe belief state (see [5]), whereas the optimal value function in BR-MDP is no longer piecewise linearin the posterior due to the ( · ) + operator in CVaR.
Revised: BR-MDP: the optimal value function in the risk-neutral POMDP is piecewise linear and convex inthe belief state (see [5]), whereas the optimal value function in BR-MDP is no longer piecewise linearin the posterior due to the ( · ) + operator in CVaR.

Original: In addition, it is computationally impossible toobtain the α -functions except for the last time stage.
Revised: In addition, it is computationally impossible toobtain the α -functions except for the last time stage.

Original: Specifically, denote the cardinality of the α t +1set as | Γ t +1 | .
Revised: Specifically, denote the cardinality of the α t +1set as | Γ t +1 | .

Original: Note that for each realization of ξ there are | Γ t +1 | candidates for the minimizer α ∗ ( ξ ) t +1 ,which attains the minimum of (cid:82) Θ α t +1 ( s t +1 , θ ) µ t ( θ ) f ( ξ ; θ ) (cid:82) Θ µ t ( θ ) f ( ξ ; θ ) dθ dθ .
Revised: Note that for each realization of ξ there are | Γ t +1 | candidates for the minimizer α ∗ ( ξ ) t +1 ,which attains the minimum of (cid:82) Θ α t +1 ( s t +1 , θ ) µ t ( θ ) f ( ξ ; θ ) (cid:82) Θ µ t ( θ ) f ( ξ ; θ ) dθ dθ .

Original: There are a total of |A|| Γ t +1 | | Ξ |candidates for Γ t , let alone the optimization over u t .
Revised: There are a total of |A|| Γ t +1 | | Ξ |candidates for Γ t , let alone the optimization over u t .

Original: To deal with the difficulty in computing theα -functions in POMDPs, [33] proposes several approximation algorithms, and later [34] extends theanalysis to a continuous-state optimal stopping problem by applying Jensen’s inequality to the exactvalue iteration in different ways and obtains a more computationally efficient approximation to theoptimal value function.
Revised: To deal with the difficulty in computing theα -functions in POMDPs, [33] proposes several approximation algorithms, and later [34] extends theanalysis to a continuous-state optimal stopping problem by applying Jensen’s inequality to the exactvalue iteration in different ways and obtains a more computationally efficient approximation to theoptimal value function.

Original: Inspired by these works, we derive an approximation approach next.
Revised: Inspired by these works, we derive an approximation approach next.

Original: 4.2 α -function approximation
Revised: 4.2 α -function approximation

Original: In this section, we derive the α -function approximation for a fixed vector ( u 0 , u 1 , · · · , u T − 1 ) .
Revised: In this section, we derive the α -function approximation for a fixed vector ( u 0 , u 1 , · · · , u T − 1 ) .

Original: Without loss of generality, we assume the cost function at each time stage is non-negative
Revised: Without loss of generality, we assume the cost function at each time stage is non-negative

Original: (otherwise add a large constant to the cost at each time stage).
Revised: (otherwise add a large constant to the cost at each time stage).

Original: For ease of exposition,we rewrite (6) as V ∗ t ( s t , µ t ) = min a t ∈A ,u t ∈ R Q ∗ t ( s t , µ t , a t , u t ) , where Q ∗ t ( s t , µ t , a t , u t ) =
Revised: For ease of exposition,we rewrite (6) as V ∗ t ( s t , µ t ) = min a t ∈A ,u t ∈ R Q ∗ t ( s t , µ t , a t , u t ) , where Q ∗ t ( s t , µ t , a t , u t ) =

Original: u t + 1 1 − α (cid:82) Θ µ t ( θ ) (cid:0)(cid:82)
Revised: u t + 1 1 − α (cid:82) Θ µ t ( θ ) (cid:0)(cid:82)

Original: Ξ f ( ξ ; θ ) (cid:0) C t ( s t , a t , ξ ) + V ∗ t +1 ( s t +1 , µ t +1 ) (cid:1) dξ − u t (cid:1) + dθ .
Revised: Ξ f ( ξ ; θ ) (cid:0) C t ( s t , a t , ξ ) + V ∗ t +1 ( s t +1 , µ t +1 ) (cid:1) dξ − u t (cid:1) + dθ .

Original: Let V t ( s t , µ t ) :
Revised: Let V t ( s t , µ t ) :

Original: =min a t Q ∗ t ( s t , µ t , a t , u t ) be the “optimal” value function for a given u t .
Revised: =min a t Q ∗ t ( s t , µ t , a t , u t ) be the “optimal” value function for a given u t .

Original: Let V t ( s t , µ t ) :
Revised: Let V t ( s t , µ t ) :

Original: =min α t ∈ Γ t (cid:82) Θ α t ( s t , θ ) µ t ( θ ) dθ , where Γ t = { α t } a t ∈A andα t ( s t , θ ) =
Revised: =min α t ∈ Γ t (cid:82) Θ α t ( s t , θ ) µ t ( θ ) dθ , where Γ t = { α t } a t ∈A andα t ( s t , θ ) =

Original: u t + 1 − α (cid:90) Ξ (cid:18)
Revised: u t + 1 − α (cid:90) Ξ (cid:18)

Original: C t ( s t , a t , ξ ) f ( ξ ; θ ) − u t + min
Revised: C t ( s t , a t , ξ ) f ( ξ ; θ ) − u t + min

Original: α t +1 α t +1 ( s t +1 , θ ) f ( ξ ; θ ) (cid:19) dξ.
Revised: α t +1 α t +1 ( s t +1 , θ ) f ( ξ ; θ ) (cid:19) dξ.

Original: V t ( s t , µ t ) serves as a lower bound for V t ( s t , µ t ) (see Proposition 4.2), and is similar to the fastinformed bound in POMDPs (see [33]).
Revised: V t ( s t , µ t ) serves as a lower bound for V t ( s t , µ t ) (see Proposition 4.2), and is similar to the fastinformed bound in POMDPs (see [33]).

Original: Note that the set Γ t has a constant cardinality of |A| .
Revised: Note that the set Γ t has a constant cardinality of |A| .

Original: However, it involves a minimum within an integral, which can be hard to compute numerically.
Revised: However, it involves a minimum within an integral, which can be hard to compute numerically.

Original: Also,the lower bound is loose in the sense that it could be negative, while the true CVaR value is alwaysnon-negative (due to the non-negative cost).
Revised: Also,the lower bound is loose in the sense that it could be negative, while the true CVaR value is alwaysnon-negative (due to the non-negative cost).

Original: Next, let ¯ V t ( s t , µ t )
Revised: Next, let ¯ V t ( s t , µ t )

Original: [Equation]
Revised: [Equation]

Original: = min
Revised: = min

Original: [Equation]
Revised: [Equation]

Original: ¯Γ
Revised: ¯Γ

Original: [Equation]
Revised: [Equation]

Original: s
Revised: s

Original: [Equation]
Revised: [Equation]

Original: , θ ) µ
Revised: , θ ) µ

Original: [Equation]
Revised: [Equation]

Original: ( θ ) dθ ,where ¯Γ t = { ¯ α t } a t ∈A and¯ α t ( s t , θ )
Revised: ( θ ) dθ ,where ¯Γ t = { ¯ α t } a t ∈A and¯ α t ( s t , θ )

Original: [Equation]
Revised: [Equation]

Original: t +
Revised: t +

Original: [Equation]
Revised: [Equation]

Original: ¯ V t ( s t , µ t ) serves as an upper bound for V t ( s t , µ t ) (see Proposition 4.2), and is similar to the unobservable MDP bound in POMDPs (see [33]), obtained by discarding all observations available tothe decision maker.
Revised: ¯ V t ( s t , µ t ) serves as an upper bound for V t ( s t , µ t ) (see Proposition 4.2), and is similar to the unobservable MDP bound in POMDPs (see [33]), obtained by discarding all observations available tothe decision maker.

Original: Suppose the cardinality at time stage t + 1 is | ¯Γ t +1 | , then ¯Γ t has a total numberof |A|| ¯Γ t +1 | candidates.
Revised: Suppose the cardinality at time stage t + 1 is | ¯Γ t +1 | , then ¯Γ t has a total numberof |A|| ¯Γ t +1 | candidates.

Original: In the following, we derive another approximate value function (cid:101) V t that isbounded by V t and ¯ V t , and is at least better than one of the above bounds.
Revised: In the following, we derive another approximate value function (cid:101) V t that isbounded by V t and ¯ V t , and is at least better than one of the above bounds.

Original: It keeps a constant number|A| of α -functions at each time stage, thus drastically reducing the computational complexity.
Revised: It keeps a constant number|A| of α -functions at each time stage, thus drastically reducing the computational complexity.

Original: Let
Revised: Let

Original: [Equation]
Revised: [Equation]

Original: t
Revised: t

Original: [Equation]
Revised: [Equation]

Original: θ
Revised: θ

Original: [Equation]
Revised: [Equation]

Original: dθ , where (cid:101) Γ t = { (cid:101) α t } a t ∈A and
Revised: dθ , where (cid:101) Γ t = { (cid:101) α t } a t ∈A and

Original: [Equation]
Revised: [Equation]

Original: Proposition 4.2.
Revised: Proposition 4.2.

Original: For all t < T and any given u t ∈ R , the following inequalities hold:
Revised: For all t < T and any given u t ∈ R , the following inequalities hold:

Original: [Equation]
Revised: [Equation]

Original: To have an implementable algorithm, we need to use the approximate updating of α -functionsiteratively and replace the true α -functions at the t + 1 time stage in (7) by the approximate (cid:101) αfunctions from the previous iteration.
Revised: To have an implementable algorithm, we need to use the approximate updating of α -functionsiteratively and replace the true α -functions at the t + 1 time stage in (7) by the approximate (cid:101) αfunctions from the previous iteration.

Original: It is clear that the iterative approximations preserve thedirections of the inequalities.
Revised: It is clear that the iterative approximations preserve thedirections of the inequalities.

Original: Define u t : := ( u t , · · · , u T − 1 ) .
Revised: Define u t : := ( u t , · · · , u T − 1 ) .

Original: The approximate value functionat time stage t for a given u t : is given by (cid:101) V t
Revised: The approximate value functionat time stage t for a given u t : is given by (cid:101) V t

Original: ( s t , µ t , u t : )
Revised: ( s t , µ t , u t : )

Original: = min ˜
Revised: = min ˜

Original: α t ∈ ˜Γ t (cid:82) Θ (cid:101) α t ( s t , θ ) µ t ( θ ) dθ , where˜Γ t = { ˜ α t } a t ∈A and
Revised: α t ∈ ˜Γ t (cid:82) Θ (cid:101) α t ( s t , θ ) µ t ( θ ) dθ , where˜Γ t = { ˜ α t } a t ∈A and

Original: [Equation]
Revised: [Equation]

Original: 4.3 Approximate dynamic programming with gradient descent
Revised: 4.3 Approximate dynamic programming with gradient descent

Original: In this section, we incorporate α -function approximation with gradient descent on ( u 0 , u 1 , · · · , u T − 1 )based on the convexity of the approximate value function w.r.t.
Revised: In this section, we incorporate α -function approximation with gradient descent on ( u 0 , u 1 , · · · , u T − 1 )based on the convexity of the approximate value function w.r.t.

Original: ( u 0 , u 1 , · · · , u T − 1 ) , as formallyshown in the theorem below.
Revised: ( u 0 , u 1 , · · · , u T − 1 ) , as formallyshown in the theorem below.

Original: Theorem 4.3.
Revised: Theorem 4.3.

Original: Suppose the cost function C t ( s, a, ξ ) is jointly convex in ( s, a ) for any fixed ξ , and thestate transition function g t ( s, a, ξ ) is jointly convex in ( s, a ) for any fixed ξ .
Revised: Suppose the cost function C t ( s, a, ξ ) is jointly convex in ( s, a ) for any fixed ξ , and thestate transition function g t ( s, a, ξ ) is jointly convex in ( s, a ) for any fixed ξ .

Original: Then the approximatevalue function (cid:101) V t ( s t , µ t , u t : ) is convex in u t : , for all t < T .
Revised: Then the approximatevalue function (cid:101) V t ( s t , µ t , u t : ) is convex in u t : , for all t < T .

Original: The jointly convex assumption in Theorem 4.3 is common for gradient-based algorithms for solvingmulti-stage decision making problems (e.g. [35]).
Revised: The jointly convex assumption in Theorem 4.3 is common for gradient-based algorithms for solvingmulti-stage decision making problems (e.g. [35]).

Original: It is satisfied in many real-world problems such as while some stopping criterion is met inventory control (e.g. [36]) and portfolio optimization (e.g. [37]).
Revised: It is satisfied in many real-world problems such as while some stopping criterion is met inventory control (e.g. [36]) and portfolio optimization (e.g. [37]).

Original: We present the full algorithm in
Revised: We present the full algorithm in

Original: Algorithm 2.
Revised: Algorithm 2.

Original: Note that in Algorithm 2, when applying the gradient descent, we need to compute the gradient of theapproximate value function w.r.t.
Revised: Note that in Algorithm 2, when applying the gradient descent, we need to compute the gradient of theapproximate value function w.r.t.

Original: the vector ( u 0 , u 1 , · · · , u T − 1 ) .
Revised: the vector ( u 0 , u 1 , · · · , u T − 1 ) .

Original: For ∂ (cid:101) V 0 ∂u 0 , we have∂ (cid:101)
Revised: For ∂ (cid:101) V 0 ∂u 0 , we have∂ (cid:101)

Original: V∂u 

Revised: V∂u

Original: = (cid:90)
Revised: = (cid:90)

Original: [Equation] [Equation]
Revised: [Equation] [Equation]

Original: (cid:26)(cid:90) Ξ
Revised: (cid:26)(cid:90) Ξ

Original: [Equation]
Revised: [Equation]

Original: where (cid:101) a ∗ 0 = arg min a 0 ∈A (cid:82) Θ (cid:101)
Revised: where (cid:101) a ∗ 0 = arg min a 0 ∈A (cid:82) Θ (cid:101)

Original: α 

Revised: α

Original: ( s 0 , θ ) µ 0 ( θ ) dθ .
Revised: ( s 0 , θ ) µ 0 ( θ ) dθ .

Original: For ∂ (cid:101) V 0 ∂u t , t = 1 , · · · , T − 1 , we have∂
Revised: For ∂ (cid:101) V 0 ∂u t , t = 1 , · · · , T − 1 , we have∂

Original: [Equation]
Revised: [Equation]

Original: V
Revised: V

Original: [Equation]
Revised: [Equation]

Original: where ∂ (cid:101) α l ∂u t can be computed recursively from ∂ (cid:101)
Revised: where ∂ (cid:101) α l ∂u t can be computed recursively from ∂ (cid:101)

Original: α l +1 ∂u t for l = 1 , · · · , t − 1 .
Revised: α l +1 ∂u t for l = 1 , · · · , t − 1 .

Original: The approximate value function output by Algorithm 2 provides an upper bound on the optimal valuefunction, which is shown in the theorem below.
Revised: The approximate value function output by Algorithm 2 provides an upper bound on the optimal valuefunction, which is shown in the theorem below.

Original: Theorem 4.4.
Revised: Theorem 4.4.

Original: min u t : (cid:101) V t ( s t , µ t , u t : ) is an upper bound for the optimal value function V ∗ t ( s t , µ t ) .
Revised: min u t : (cid:101) V t ( s t , µ t , u t : ) is an upper bound for the optimal value function V ∗ t ( s t , µ t ) .

Original: Even though the approximate value function is an upper bound on the optimal value function, wewill later show in the numerical experiments that the gap between these two is small.
Revised: Even though the approximate value function is an upper bound on the optimal value function, wewill later show in the numerical experiments that the gap between these two is small.

Original: As a final note,even though we develop the algorithm for the risk functional CVaR, it can be extended easily to othercoherent risk measures.
Revised: As a final note,even though we develop the algorithm for the risk functional CVaR, it can be extended easily to othercoherent risk measures.

Original: The detailed discussion can be found in Appendix.
Revised: The detailed discussion can be found in Appendix.

Original:  Numerical experiments
Revised:  Numerical experiments

Original: We illustrate the performance of our proposed formulation and algorithms with two offline planningproblems.
Revised: We illustrate the performance of our proposed formulation and algorithms with two offline planningproblems.

Original: Gambler’s betting problem .
Revised: Gambler’s betting problem .

Original: Consider a gambler betting in the casino with initialmoney of s 0 .
Revised: Consider a gambler betting in the casino with initialmoney of s 0 .

Original: At each time stage the gambler chooses how much to bet from a set { 0 , 1 , 2 , 5 , 10 } .
Revised: At each time stage the gambler chooses how much to bet from a set { 0 , 1 , 2 , 3 , 5 } .

Original: The gambler bets for T = 6 rounds.
Revised: The gambler bets for T = 6 rounds.

Original: The cost at each time stage is − a · ξ , where a stands foraction of how much to bet, ξ = 1 stands for a win, ξ = − 1 stands for a loss, and the winningrate θ c = P ( ξ = 1) is unknown.
Revised: The cost at each time stage is − a · ξ , where a stands foraction of how much to bet, ξ = 2 stands for a win, ξ = − 1 stands for a loss, and the winningrate θ c = P ( ξ = 2) is unknown.

Original: We add a constant c = 10 to make the adjusted cost c − a · ξnon-negative to run our algorithm (since the algorithm requires non-negative stage-wise cost),and then subtract cT from the resultant total adjusted cost to recover the total cost.
Revised: We add a constant c = 10 to make the adjusted cost c − a · ξnon-negative to run our algorithm (since the algorithm requires non-negative stage-wise cost),and then subtract cT from the resultant total adjusted cost to recover the total cost.

Original: The data setconsists of historical betting records with size N .
Revised: The data setconsists of historical betting records with size N .

Original: (2) Inventory control problem .
Revised: (2) Inventory control problem .

Original: Consider awarehouse manager with initial inventory level s 0 .
Revised: Consider awarehouse manager with initial inventory level s 0 .

Original: At each time stage the manager chooses howmuch to replenish from the set { 0 , 1 , · · · , M − s } , where M = 15 is the storage capacity.
Revised: At each time stage the manager chooses howmuch to replenish from the set { 0 , 1 , · · · , M − s } , where M = 15 is the storage capacity.

Original: Thecustomer demand is a random variable ξ following a Poisson distribution with parameter θ c truncatedbelow M C = 20 , which is the maximal customer demand the warehouse can handle.
Revised: Thecustomer demand is a random variable ξ following a Poisson distribution with parameter θ c truncatedbelow M C = 20 , which is the maximal customer demand the warehouse can handle.

Original: The statetransition is given by s t +1 = max
Revised: The statetransition is given by s t +1 = max

Original: ( s t + a t − ξ t , 0) , the cost function is given by C t ( s t , a t , ξ t ) =
Revised: ( s t + a t − ξ t , 0) , the cost function is given by C t ( s t , a t , ξ t ) =

Original: h t · max( s t + a t − ξ t , 0) + p t · max( ξ t − s t − a t , 0) , where h t is the holding cost and p t is the penalty cost.
Revised: h t · max( s t + a t − ξ t , 0) + p t · max( ξ t − s t − a t , 0) , where h t is the holding cost and p t is the penalty cost.

Original: The final stage cost is set to 0 for simplicity.
Revised: The final stage cost is set to 0 for simplicity.

Original: The manager has to plan for T = 6 timestages.
Revised: The manager has to plan for T = 6 timestages.

Original: The data set consists of historical customer demands with size N .
Revised: The data set consists of historical customer demands with size N .

Original: We compare the following approaches.
Revised: We compare the following approaches.

Original: (1) BR-MDP (e.): exact dynamic programming (Algorithm 1),where the state s t and µ t are discretized to a fine grid to carry out the dynamic programming (see
Revised: (1) BR-MDP (e.): exact dynamic programming (Algorithm 1),where the state s t and µ t are discretized to a fine grid to carry out the dynamic programming (see

Original: Appendix for details).
Revised: Appendix for details).

Original: (2) BR-MDP (a.): approximate dynamic programming (Algorithm 2).
Revised: (2) BR-MDP (a.): approximate dynamic programming (Algorithm 2).

Original: Nominal: maximal likelihood estimation (MLE) estimator θ MLE is computed from the given data, andthen a policy is obtained by solving the MDP with parameter θ MLE .
Revised: Nominal: maximal likelihood estimation (MLE) estimator θ MLE is computed from the given data, andthen a policy is obtained by solving the MDP with parameter θ MLE .

Original: (4) DR-MDP: distributionallyrobust MDP presented in [1].
Revised: (4) DR-MDP: distributionallyrobust MDP presented in [1].

Original: For each of the considered approaches, we obtain the correspondingoptimal policy for a same data set, and then evaluate the actual performance of the obtained policyon the true system, i.e., MDP with the true parameter θ c .
Revised: For each of the considered approaches, we obtain the correspondingoptimal policy for a same data set, and then evaluate the actual performance of the obtained policyon the true system, i.e., MDP with the true parameter θ c .

Original: This is referred to as one replication, andwe repeat the experiments for 100 replications on different independent data sets.
Revised: This is referred to as one replication, andwe repeat the experiments for 100 replications on different independent data sets.

Original: Results for thegambler’s betting problem can be found in Table 1a, Table 2, Figure 1a and Figure 1b.
Revised: Results for thegambler’s betting problem can be found in Table 1a, Table 2, Figure 1a and Figure 1b.

Original: Results for theinventory control problem can be found in Table 1b.
Revised: Results for theinventory control problem can be found in Table 1b.

Original: [Table] [Table]
Revised: [Table] [Table]

Original: Table 1 reports the average computation time to obtain the optimal policy and the mean and varianceof the actual performance of the obtained policy over the 100 replications.
Revised: Table 1 reports the average computation time to obtain the optimal policy and the mean and varianceof the actual performance of the obtained policy over the 100 replications.

Original:  We have the followingobservations: (1) The nominal approach has the largest variability (see variance of  the actualperformance).
Revised: Table 2 reports the actualperformance of different formulations over 100 replications with different data size N = 5 , 10 , 100 . We have the following observations. (1) Robustness of BR-MDP : BR-MDP is the most robust inthe sense of balancing the mean (smaller mean cost) and variability (smaller variance) of the actualperformance of its solution. In contrast, the nominal approach has much larger variance, especiallywhen the data size is small, indicating it is not robust against parameter uncertainty.

Original: (2) DR-MDP is the most conservative since the variance of actual performance is 0,but this conservativeness is not always desirable.
Revised: On the otherhand, DR-MDP is overly conservative since the variance of actual performance is 0 and the mean isthe largest (i.e., the worst) among all approaches.

Original: In the betting problem,the conservative action isnot to bet. DR-MDP always chooses not to bet, which is not optimal when θ c > 0 . This can be seenfrom the worst actual performance of DR-MDP in the betting problem when θ c = 0 . 55 and in theinventory control problem.
Revised: This conservativeness is often not desirable: forexample, in the betting problem, DR-MDP always chooses the conservative action “not bet”, whichis obviously not optimal when θ c (probability of winning) is large and the goal is to minimize theexpected cost.

Original: (3) For BR-MDP, the computation time for  the approximation algorithmis greatly reduced compared to the exact algorithm. Table 2 reports the actual performance of different formulations over 100 replications with differentdata size N = 5 , 10 , 100 .
Revised: (2) Efficiency of the approximation algorithm for BR-MDP : the computation timeof the approximation algorithm for BR-MDP is less than 1/10 of that of the exact algorithm, whilethe performance (mean, variance) is not much different.

Original: We have the following observations: (1) When the data size is very small( N = 5 ), our proposed formulation provides more robustness (much smaller variance) than thenominal approach, which does not hedge against the distributional shift at all. (2) When the data sizegrows larger, the robustness and the benefit of considering future data realization in our proposedformulation decrease compared to the nominal approach, as both the posterior distribution and the 
Revised: (3) Larger data size reduces parameteruncertainty: as expected, as we have more data, the uncertainty about model parameters reduces. Hence, the benefit of considering future data realization in BR-MDP decreases compared to thenominal approach, resulting in their similar performance when the data size is large ( N = 100 inour examples).

Original: MLE estimator converges to the true parameter as data size goes to infinity.
Revised: The reason is that both the posterior distribution (used in BR-MDP) and the MLEestimator (used in the nominal approach ) converge to the true parameter as data size goes to infinity.

Original: Figure 1a shows the histogram of actual performance over 100 replications for the nominal approachand CVaR BR-MDP (exact) with different confidence levels α = 0 .
Revised: Figure 1a shows the histogram of actual performance over 100 replications for the nominal approachand CVaR BR-MDP (exact) with different confidence levels α = 0 .

Original: under θ c = 0 .
Revised: under θ c = 0 .

Original: Wehave the following observations combining Table 1 and Figure 1a: (1) Our BR-MDP formulation(both exact and approximate) produce more consistent solution performance across a wide range of input data compared to the nominal approach, which can be seen from the smaller variance in Table 1 and more concentrated distribution of the actual performance in Figure 1a.
Revised: We have the following observations combining Table 1 and Figure 1a: (1) Robustness of BR-MDP: BR-MDP (both exact and approximate) produce more consistent solution performance across awide range of input data compared to the nominal approach, which can be seen from the smallervariance in Table 1 and more concentrated distribution of the actual performance in Figure 1a.

Original: (2) Comparedwith DR-MDP, our BR-MDP formulation provides less conservative solution by not fixating on theworst-case scenario, which can be seen from the better actual performance in the inventory controlproblem (see Table 1b) and the betting problem (see Table 1a when θ c = 0 . 55 ). Our BR-MDPformulation balances the trade-off between the expected performance and variability in the actualperformance. (3) Figure 1a shows that in the betting problem with θ c = 0 .
Revised: Benefit of learning from future data realization (time consistency): Figure 1a shows that in thebetting problem with θ c = 0 .

Original: 45 , the nominal approachhas 20 replications where MLE estimator θ MLE > 0 .
Revised: 45 , the nominal approach has 40 replications where MLE estimatorθ MLE < 0 .

Original: 5 and the gambler chooses  to bet, which isnot the optimal action.
Revised: 33 and the gambler chooses not to bet, which is not the optimal action.

Original: In contrast, BR-MDP formulation will learn from the future data realizationand update its posterior distribution on θ .
Revised: In contrast, BR-MDP formulation learns from the future data realization and updates its posterior distribution onθ .

Original: As a result, in those 20 replications, the gambler initiallychooses to bet, but after some time chooses not to bet, which results in the left-shift of the actualperformance distribution.
Revised: As a result, in those 40 replications, the gambler initially chooses not to bet, but after some timechooses to bet, which results in the left-shift of the actual performance distribution.

Original: This illustrates time consistency (or in other words, adaptivity to the dataprocess) of our BR-MDP formulation.
Revised: This illustratestime consistency (or in other words, adaptivity to the data process) of our BR-MDP formulation.

Original: This illustration is even more evident by the comparisonbetween DR-MDP and BR-MDP with α = 1 (CVaR with α = 1 corresponds to the worst-casemeasure), where the only difference is that BR-MDP takes a nested form of risk functional while DR-MDP uses a static one.
Revised: This illustration is even more evident by the comparison between DR-MDP and BR-MDP withα = 1 (CVaR with α = 1 corresponds to the worst-case measure), where the only difference is that BR-MDP takes a nested form of risk functional while DR-MDP uses a static one.

Original: The confidence level α affects the conservativeness of the CVaR BR-MDP formulation. As α increases, the gambler is more likely to take a conservative action (whichis not to bet), so the actual performance distribution will shift more to the left.
Revised: (3) Effect of risklevel: risk level α affects the conservativeness of BR-MDP; as α increases, the gambler is morelikely to take a conservative action (which is not to bet), so the actual performance distribution willshift more to the right.

Original: Lastly, Figure 1bplots the value function V ∗ 0 ( s 0 , µ 0 ) ofCVaR BR-MDP (exact) and ˜ V ∗ 0 ( s 0 , µ 0 ) of CVaR BR-MDP(approx) under different prior distributions µ 0 with θ c = 0 . 45 , verifying Theorem 4.4 that ˜ V ∗ 0 ( s 0 , µ 0 )is indeed an upper bound for V ∗ 0 ( s 0 , µ 0 ) but the difference between these two is small.
Revised: (4) Effectiveness of the approximation algorithm for BR-MDP: Figure 1bplots the value function V ∗ 0 ( s 0 , µ 0 ) of BR-MDP (exact) and ˜ V ∗ 0 ( s 0 , µ 0 ) of BR-MDP (approx) underdifferent prior distributions µ 0 with θ c = 0 . 45 , verifying Theorem 4.4 that ˜ V ∗ 0 ( s 0 , µ 0 ) is indeed anupper bound for V ∗ 0 ( s 0 , µ 0 ) but the difference between these two is small.

Original: (a) Histogramof actual performance over 100 repli- cations for CVaR BR-MDP (exact) with different α . [Figure] b) Value functions of CVaR BR-MDP (exact and approx) under different priors.
Revised: (a) Histogram

Original:  Conclusion
Revised:  Conclusion

Original: In this paper, we propose a new formulation, coined as Bayesian Risk MDP (BR-MDP), to providerobustness against parameter uncertainty in MDPs.
Revised: In this paper, we propose a new formulation, coined as Bayesian Risk MDP (BR-MDP), to providerobustness against parameter uncertainty in MDPs.

Original: BR-MDP is a time-consistent formulation with adynamic risk functional that seeks the trade-off between the posterior expected performance and therobustness in the actual performance.
Revised: BR-MDP is a time-consistent formulation with adynamic risk functional that seeks the trade-off between the posterior expected performance and therobustness in the actual performance.

Original: For finite-horizon BR-MDP with the CVaR risk functional,we develop an efficient approximation algorithm by drawing a connection between BR-MDPs and
Revised: For finite-horizon BR-MDP with the CVaR risk functional,we develop an efficient approximation algorithm by drawing a connection between BR-MDPs and

Original: POMDPs and deriving an approximate alpha-function representation that remains a low computationalcost.
Revised: POMDPs and deriving an approximate alpha-function representation that remains a low computationalcost.

Original: Our experiment results demonstrate the efficiency of the proposed approximate algorithm, andshow the robustness and the adaptivity to future data realization of the BR-MDP formulation.
Revised: Our experiment results demonstrate the efficiency of the proposed approximate algorithm, andshow the robustness and the adaptivity to future data realization of the BR-MDP formulation.

Original: One of the limitations of our work is the parametric assumption on the distribution of randomness.
Revised: One of the limitations of our work is the parametric assumption on the distribution of randomness.

Original: In 342 the future work, we wish to extend the BR-MDP formulation to non-parametric Bayesian setting, andevaluate the performance of the proposed formulation and algorithm on real-world data sets in more 344 challenging problems.
Revised: In 342 the future work, we wish to extend the BR-MDP formulation to non-parametric Bayesian setting, andevaluate the performance of the proposed formulation and algorithm on real-world data sets in more 344 challenging problems.

Original: In addition, the proposed alpha-function approximation algorithm provides anupper bound of the exact value, while there is no theoretical guarantee on the gap between the two.
Revised: In addition, the proposed alpha-function approximation algorithm provides anupper bound of the exact value, while there is no theoretical guarantee on the gap between the two.

Original: In 346 future we will develop more efficient approximation algorithms with a convergence guarantee, such asmethods based on stochastic dual dynamic programming.
Revised: In 346 future we will develop more efficient approximation algorithms with a convergence guarantee, such asmethods based on stochastic dual dynamic programming.

Original: There are also other interesting directions, 348 such as extending the BR-MDP formulation to an infinite horizon problem and utilizing functionapproximation to improve the scalability of the proposed approach to more complex domains.
Revised: There are also other interesting directions, 348 such as extending the BR-MDP formulation to an infinite horizon problem and utilizing functionapproximation to improve the scalability of the proposed approach to more complex domains.

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