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  1. Assortment optimization with choice model estimation and learning has been studied extensively in the data-driven revenue management literature. Existing methods and analysis, however, do not take into consideration the fact that some customers arriving at certain time periods might exhibit outlier purchasing behaviors. The work of Chen et al. studies dynamic assortment optimization in the presence of outlier customers modeled by an eps-contamination model. The impact of outlier customers on the revenue performance of an algorithm is analyzed and discussed. 
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    Free, publicly-accessible full text available August 21, 2024
  2. Assortment optimization has received active explorations in the past few decades due to its practical importance. Despite the extensive literature dealing with optimization algorithms and latent score estimation, uncertainty quantification for the optimal assortment still needs to be explored and is of great practical significance. Instead of estimating and recovering the complete optimal offer set, decision-makers may only be interested in testing whether a given property holds true for the optimal assortment, such as whether they should include several products of interest in the optimal set, or how many categories of products the optimal set should include. This paper proposes a novel inferential framework for testing such properties. We consider the widely adopted multinomial logit (MNL) model, where we assume that each customer will purchase an item within the offered products with a probability proportional to the underlying preference score associated with the product. We reduce inferring a general optimal assortment property to quantifying the uncertainty associated with the sign change point detection of the marginal revenue gaps. We show the asymptotic normality of the marginal revenue gap estimator, and construct a maximum statistic via the gap estimators to detect the sign change point. By approximating the distribution of the maximum statistic with multiplier bootstrap techniques, we propose a valid testing procedure. We also conduct numerical experiments to assess the performance of our method. 
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    Free, publicly-accessible full text available July 7, 2024
  3. This paper builds a bridge between two areas in optimization and machine learning by establishing a general connection between Wasserstein distributional robustness and variation regularization. It helps to demystify the empirical success of Wasserstein distributionally robust optimization and devise new regularization schemes for machine learning. 
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  4. In recent decades, the advance of information technology and abundant personal data facilitate the application of algorithmic personalized pricing. However, this leads to the growing concern of potential violation of privacy because of adversarial attack. To address the privacy issue, this paper studies a dynamic personalized pricing problem with unknown nonparametric demand models under data privacy protection. Two concepts of data privacy, which have been widely applied in practices, are introduced: central differential privacy (CDP) and local differential privacy (LDP), which is proved to be stronger than CDP in many cases. We develop two algorithms that make pricing decisions and learn the unknown demand on the fly while satisfying the CDP and LDP guarantee, respectively. In particular, for the algorithm with CDP guarantee, the regret is proved to be at most [Formula: see text]. Here, the parameter T denotes the length of the time horizon, d is the dimension of the personalized information vector, and the key parameter [Formula: see text] measures the strength of privacy (smaller ε indicates a stronger privacy protection). Conversely, for the algorithm with LDP guarantee, its regret is proved to be at most [Formula: see text], which is near optimal as we prove a lower bound of [Formula: see text] for any algorithm with LDP guarantee. 
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  5. A sequential design problem for rank aggregation is commonly encountered in psychology, politics, marketing, sports, etc. In this problem, a decision maker is responsible for ranking K items by sequentially collecting noisy pairwise comparisons from judges. The decision maker needs to choose a pair of items for comparison in each step, decide when to stop data collection, and make a final decision after stopping based on a sequential flow of information. Because of the complex ranking structure, existing sequential analysis methods are not suitable. In this paper, we formulate the problem under a Bayesian decision framework and propose sequential procedures that are asymptotically optimal. These procedures achieve asymptotic optimality by seeking a balance between exploration (i.e., finding the most indistinguishable pair of items) and exploitation (i.e., comparing the most indistinguishable pair based on the current information). New analytical tools are developed for proving the asymptotic results, combining advanced change of measure techniques for handling the level crossing of likelihood ratios and classic large deviation results for martingales, which are of separate theoretical interest in solving complex sequential design problems. A mirror-descent algorithm is developed for the computation of the proposed sequential procedures. 
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  6. In this paper, we study the learning problem in contextual search, which is motivated by applications such as crowdsourcing and personalized medicine experiments. In particular, for a sequence of arriving context vectors, with each context associated with an underlying value, the decision maker either makes a query at a certain point or skips the context. The decision maker will only observe the binary feedback on the relationship between the query point and the value associated with the context. We study a probably approximately correct learning setting, where the goal is to learn the underlying mean value function in context with a minimum number of queries. To address this challenge, we propose a trisection search approach combined with a margin-based active learning method. We show that the algorithm only needs to make [Formula: see text] queries to achieve an ε-estimation accuracy. This sample complexity significantly reduces the required sample complexity in the passive setting where neither sample skipping nor query selection is allowed, which is at least [Formula: see text]. This paper was accepted by J. George Shanthikumar, data science. 
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  7. This paper studies a dynamic pricing problem under model misspecification. To characterize model misspecification, we adopt the ε-contamination model—the most fundamental model in robust statistics and machine learning. In particular, for a selling horizon of length T, the online ε-contamination model assumes that demands are realized according to a typical unknown demand function only for [Formula: see text] periods. For the rest of [Formula: see text] periods, an outlier purchase can happen with arbitrary demand functions. The challenges brought by the presence of outlier customers are mainly due to the fact that arrivals of outliers and their exhibited demand behaviors are completely arbitrary, therefore calling for robust estimation and exploration strategies that can handle any outlier arrival and demand patterns. We first consider unconstrained dynamic pricing without any inventory constraint. In this case, we adopt the Follow-the-Regularized-Leader algorithm to hedge against outlier purchase behavior. Then, we introduce inventory constraints. When the inventory is insufficient, we study a robust bisection-search algorithm to identify the clearance price—that is, the price at which the initial inventory is expected to clear at the end of T periods. Finally, we study the general dynamic pricing case, where a retailer has no clue whether the inventory is sufficient or not. In this case, we design a meta-algorithm that combines the previous two policies. All algorithms are fully adaptive, without requiring prior knowledge of the outlier proportion parameter ε. Simulation study shows that our policy outperforms existing policies in the literature. 
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  8. null (Ed.)
    The prevalence of e-commerce has made customers’ detailed personal information readily accessible to retailers, and this information has been widely used in pricing decisions. When using personalized information, the question of how to protect the privacy of such information becomes a critical issue in practice. In this paper, we consider a dynamic pricing problem over T time periods with an unknown demand function of posted price and personalized information. At each time t, the retailer observes an arriving customer’s personal information and offers a price. The customer then makes the purchase decision, which will be utilized by the retailer to learn the underlying demand function. There is potentially a serious privacy concern during this process: a third-party agent might infer the personalized information and purchase decisions from price changes in the pricing system. Using the fundamental framework of differential privacy from computer science, we develop a privacy-preserving dynamic pricing policy, which tries to maximize the retailer revenue while avoiding information leakage of individual customer’s information and purchasing decisions. To this end, we first introduce a notion of anticipating [Formula: see text]-differential privacy that is tailored to the dynamic pricing problem. Our policy achieves both the privacy guarantee and the performance guarantee in terms of regret. Roughly speaking, for d-dimensional personalized information, our algorithm achieves the expected regret at the order of [Formula: see text] when the customers’ information is adversarially chosen. For stochastic personalized information, the regret bound can be further improved to [Formula: see text]. This paper was accepted by J. George Shanthikumar, big data analytics. 
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  9. null (Ed.)
    Distributionally robust optimization (DRO) has been introduced for solving stochastic programs in which the distribution of the random variables is unknown and must be estimated by samples from that distribution. A key element of DRO is the construction of the ambiguity set, which is a set of distributions that contains the true distribution with a high probability. Assuming that the true distribution has a probability density function, we propose a class of ambiguity sets based on confidence bands of the true density function. As examples, we consider the shape-restricted confidence bands and the confidence bands constructed with a kernel density estimation technique. The former allows us to incorporate the prior knowledge of the shape of the underlying density function (e.g., unimodality and monotonicity), and the latter enables us to handle multidimensional cases. Furthermore, we establish the convergence of the optimal value of DRO to that of the underlying stochastic program as the sample size increases. The DRO with our ambiguity set involves functional decision variables and infinitely many constraints. To address this challenge, we apply duality theory to reformulate the DRO to a finite-dimensional stochastic program, which is amenable to a stochastic subgradient scheme as a solution method. 
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