TwoStage

Photo by Taylor Vick on UnsplashFormulating and solving a two-stage stochastic server farm problemStochastic programming (SP) is a framework for modeling optimization problems that involve uncertainty . In many cases, SP models take the form of a two-stage problem. The first stage involves finding the optimal deterministic decisions. These decisions are based on information we know to be certain (AKA the here-and-now decisions). The second stage involves making decisions that rely on randomness (also called the recourse…

Image by SpaceX-Imagery from Pixabay (License)We’ll learn how to use the 2SLS technique to estimate linear models containing Instrumental VariablesIn this article, we’ll learn about two different ways to estimate a linear model using the Instrumental Variables technique.In the previous article, we learnt about Instrumental Variables, what they are, and when and how to use them. Let’s recap what we learnt:Consider the following linear model:A linear model of two variables x_2 and x_3 (Image by Author)In the above equation,…