Inverse Reinforcement Learning for Marketing

18 Pages Posted: 15 Dec 2017

Date Written: December 13, 2017

Abstract

Learning customer preferences from an observed behaviour is an important topic in the marketing literature. Structural models typically model forward-looking customers or firms as utility-maximizing agents whose utility is estimated using methods of Stochastic Optimal Control. We suggest an alternative approach to study dynamic consumer demand, based on Inverse Reinforcement Learning (IRL). We develop a version of the Maximum Entropy IRL that leads to a highly tractable model formulation that amounts to low-dimensional convex optimization in the search for optimal model parameters. Using simulations of consumer demand, we show that observational noise for identical customers can be easily confused with an apparent consumer heterogeneity.

Keywords: Marketing Strategies, Consumer Utility, Inverse Reinforcement Learning

Suggested Citation

Halperin, Igor, Inverse Reinforcement Learning for Marketing (December 13, 2017). Available at SSRN: https://ssrn.com/abstract=3087057 or http://dx.doi.org/10.2139/ssrn.3087057

Igor Halperin (Contact Author)

Fidelity Investments, Inc. ( email )

United States

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