arXiv:2610.36733v1 Announce Type: new Abstract: Partially observable restless multi-armed bandit models have been studied for dynamic resource allocation problems under uncertainty. This paper analyzes three-state restless multi-armed bandits with partial observability. These are called collapsing bandit problems if the state of an arm (bandit) is perfectly observable when it is scheduled for allocation. The state is not observable when the arm is not scheduled. The planner has a budget constraint on the scheduling decisions in each time slot. The planner's goal is to maximize expected cumulative long term discounted reward. We study the Whittle index policy. To analyze index policy, first the $N$-armed collapsing bandit problem is decoupled into $N$ single arm problems, and convexity and monotonicity of the optimal value function in belief vector are derived using monotone likelihood ratio (MLR) ordering on state transition dynamics and monotone reward structure assumption. We next show that the optimal policy is of threshold type in belief under sufficiency conditions on the model. These sufficiency conditions depend on Lipschitz bound on the value function in the belief. We further prove the indexability for an arm using Lipschitz bound on subsidy sensitivity with minimal restrictive assumption on the transition probability model and discount factor $\beta.$ Our results generalize to three state and strengthen existing results on threshold policy and indexability with weaker model assumptions. We provide index computation algorithm and we present comparison of the Whittle-index, myopic policy and round-robin policies in the simulation study.