Part of Advances in Neural Information Processing Systems 32 (NeurIPS 2019)
Virag Shah, Ramesh Johari, Jose Blanchet
Motivated by the application of real-time pricing in e-commerce platforms, we consider the problem of revenue-maximization in a setting where the seller can leverage contextual information describing the customer's history and the product's type to predict her valuation of the product. However, her true valuation is unobservable to the seller, only binary outcome in the form of success-failure of a transaction is observed. Unlike in usual contextual bandit settings, the optimal price/arm given a covariate in our setting is sensitive to the detailed characteristics of the residual uncertainty distribution. We develop a semi-parametric model in which the residual distribution is non-parametric and provide the first algorithm which learns both regression parameters and residual distribution with $\tilde O(\sqrt{n})$ regret. We empirically test a scalable implementation of our algorithm and observe good performance.