The aim of this study is to provide this framework as well as benchmark business performance of both Uplift Modeling and Reinforcement Learning. Furthermore, the framework will account for the essential requirements of profit maximization in real-world business scenarios that have rarely been covered in uplift literature. Specifically, it incorporates covariates that capture the expected revenue and costs associated with a given action, which are necessary to account for the heterogeneity in spending patterns and action costs.
Profit maximization is traditionally known as one of the key objectives of a firm and requires little explanation. In a marketing context, it translates to targeting only the relevant individuals, namely those that will react favorably to receiving a form of treatment. Identifying precisely those individuals has been subject of two distinct Machine Learning approaches that are associated with optimal decision-making: Uplift Modeling and Reinforcement Learning. Despite their shared focus, both techniques are fundamentally distinct from each other. Uplift Modeling utilizes labeled data to predict the uplift of an action, whereas Reinforcement Learning is an iterative, label-free technique that aims to determine the optimal decision, incorporating the uplift. However – to date – research has scarcely examined the comparative effectiveness of these two approaches, nor has it explored the feasibility of an integrated framework that leverages both disciplines.
Table of Contents
0. Introduction
0.1 Research Contributions
0.2 Structure of this Paper
1. Preliminaries
1.1 Uplift Modeling in Machine Learning
1.2 Profit Maximization in Uplift Modeling
1.3 Policy Learning and multi-armed Bandit Models
2. Reinforcement Learning for Uplift Modeling
2.1 Policy Learning Approaches to Uplift Modeling
2.2 Multi-Armed Bandit Models for Uplift Modeling
3. Related Literature
3.1 Profit Maximization through Uplift Modeling
3.2 Reinforcement Learning for Uplift Modeling
4. Experiment
4.1 Methodology
4.2 Data Sets
5. Empirical Results
5.1 Regret-Optimality as the reward metric for PL
6. Conclusion
7. Limitations and further Research
References
Research Objective and Topics
The primary aim of this study is to formalize a novel approach to the profit maximization objective in uplift modeling by integrating policy learning and reinforcement learning (RL) techniques, specifically evaluating the efficacy of regret-optimal policy learning strategies in real-world business scenarios.
- Integration of uplift modeling and reinforcement learning paradigms.
- Formalization of profit maximization through regret-optimal policy learning.
- Benchmarking of supervised learning versus RL-based uplift strategies.
- Analysis of contextual and multi-armed bandit models in marketing contexts.
Excerpt from the Book
0.1 Research Contributions
This work aims to help bridge the gap in research on the connection of uplift modeling and policy learning, with a focus on a business context. Here, this study will formalize a novel approach to the profit maximization objective in uplift modeling in connection with policy learning and MABs. It is noteworthy that existing attempts at tackling this objective in uplift modeling as a supervised learning technique alone have overall been fragmentary, focusing on individual aspects such as cost optimization (Zhao & Harinen, 2019), optimizing for expected revenue (Gubela et al., 2017) and allowing for multiple treatments (e.g., Olaya, Coussement & Verbeke, 2020; Zhao, Fang & Simchi-Levi, 2017), with few taking a holistic perspective (e.g., Baier & Stöcker, 2022).
Moreover, this study aims to evaluate the comparative efficacy of policy learning and simplified MAB models, with a particular emphasis on causal and contextual bandit models. The research seeks to provide a benchmark to determine the potential advantages or limitations of employing policy learning and MAB models for UM in real-world scenarios.
The scientific contribution consists of three main elements:
Summary of Chapters
0. Introduction: Outlines the motivation for connecting uplift modeling with reinforcement learning and defines the research scope and contribution.
1. Preliminaries: Provides the foundational theory for uplift modeling, profit maximization, and policy learning mechanisms within machine learning.
2. Reinforcement Learning for Uplift Modeling: Formulates the uplift modeling problem using the Markov Decision Process (MDP) framework to enable regret-based optimization.
3. Related Literature: Reviews existing methodologies for profit maximization in uplift modeling and current adoptions of reinforcement learning in this field.
4. Experiment: Describes the methodology, including the usage of separate models, X-Learner, and bandit-based approaches, and introduces the two datasets used.
5. Empirical Results: Analyzes the quantitative performance of RL-based uplift models compared to traditional supervised learning techniques.
6. Conclusion: Summarizes the key findings and the theoretical advancements made by the proposed framework.
7. Limitations and further Research: Identifies constraints of the current study, such as dataset size and attribute availability, and suggests future research directions.
Keywords
Uplift Modeling, Reinforcement Learning, Causal Learning, Multi-armed Bandit Models, Regret, Profit Maximization, Policy Learning, Machine Learning, Customer Lifetime Value, Business Performance, Supervised Learning, Markov Decision Process.
Frequently Asked Questions
What is the core focus of this thesis?
The thesis focuses on maximizing marketing profits by integrating uplift modeling with reinforcement learning and policy learning strategies, moving beyond traditional supervised learning approaches.
Which fields does this work connect?
It bridges the gap between uplift modeling (UM) and reinforcement learning (RL), specifically utilizing policy learning and multi-armed bandit (MAB) frameworks.
What is the primary objective of this research?
The primary goal is to formalize a framework for profit maximization in uplift modeling that incorporates expected revenues and costs through regret-optimal policy learning.
What scientific methods are utilized?
The work employs a Markov Decision Process (MDP) framework and compares supervised learning (SL) techniques (like X-Learner) against reinforcement learning approaches (contextual multi-armed bandits, Q-learning).
What is the content of the main experiment?
The experiment benchmarks various uplift modeling techniques—including RF-based learners, X-Learners, and contextual bandits—against a new proprietary e-commerce dataset and the public Hillstrom dataset.
Which keywords best describe this study?
Key terms include Uplift Modeling, Reinforcement Learning, Regret, Profit Maximization, Policy Learning, and Causal Learning.
How does regret-optimality improve uplift modeling?
Regret-optimality acts as a performance measure that guides the model to learn a policy performing as close as possible to the optimal, reducing the business cost of sub-optimal decision-making.
How does the introduction of costs change the uplift problem?
Incorporating costs allows the model to differentiate between treatments not just by their conversion probability, but by the net business value, preventing the targeting of individuals where the cost of the action outweighs the potential benefit.
Why are standard metrics insufficient for this study?
Standard metrics like AUUC or Qini-coefficients fail to incorporate business-specific covariates like expected revenue and operational costs, which this study addresses via FPM (financial performance metrics) functions.
- Quote paper
- Jon Henrik Rosenkranz (Author), 2023, Maximizing profit in uplift modeling through regret-optimal policy learning strategies, Munich, GRIN Verlag, https://www.grin.com/document/1378908
