What Should the Seller Do?
Four-step stochastic strategy
1 Model the auction process stochastically using Markov chain (MC).
2 Compute the transition probabilities between the MC states using ...
- The arrival rates of other agents
- The reservation prices of other agents
3 Compute the probabilities and payoffs of success and failure.
- A theoretically-sound method to compute those values
4 Find the payment with the highest expected utility.
- Optimization
- U(x) = Pr S (x) * Payoff S (x) + P r F (x) * Payoff F (x)