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Personalized Pricing with Invalid Instrumental Variables: Identification, Estimation, and Policy Learning

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arxiv 2302.12670 v1 pith:YDC54NXO submitted 2023-02-24 stat.ME cs.LGecon.EMstat.ML

classification stat.MEcs.LGecon.EMstat.ML
keywords pricinginstrumentalpersonalizedinvalidoptimalstrategyvariablesdirect
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Pricing based on individual customer characteristics is widely used to maximize sellers' revenues. This work studies offline personalized pricing under endogeneity using an instrumental variable approach. Standard instrumental variable methods in causal inference/econometrics either focus on a discrete treatment space or require the exclusion restriction of instruments from having a direct effect on the outcome, which limits their applicability in personalized pricing. In this paper, we propose a new policy learning method for Personalized pRicing using Invalid iNsTrumental variables (PRINT) for continuous treatment that allow direct effects on the outcome. Specifically, relying on the structural models of revenue and price, we establish the identifiability condition of an optimal pricing strategy under endogeneity with the help of invalid instrumental variables. Based on this new identification, which leads to solving conditional moment restrictions with generalized residual functions, we construct an adversarial min-max estimator and learn an optimal pricing strategy. Furthermore, we establish an asymptotic regret bound to find an optimal pricing strategy. Finally, we demonstrate the effectiveness of the proposed method via extensive simulation studies as well as a real data application from an US online auto loan company.

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  1. Quantile-Optimal Policy Learning under Unmeasured Confounding

    stat.ML 2025-06 conditional novelty 7.0 of 10

    Under instrumental-variable or negative-control assumptions, the authors prove a pessimism-based policy learning method achieves about 1/sqrt(n)-type regret for quantile reward objectives with unmeasured confounders.

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