Posted Price Mechanisms and Optimal Threshold Strategies for Random Arrivals II: For I.I.D. Variables, Adaptive Thresholds Achieve E[max Xᵢ] ≤ β*·E[X_t] with β* ≈ 1.341Research Paper
Motivation
A prophet inequality compares a gambler who sees nonnegative random rewards one at a time, and must accept or reject each on arrival, with a prophet who knows all values in advance and simply takes . For independent and identically distributed (i.i.d.) rewards the question is the best constant such that some online rule always earns at least . The question matters in operations research and mechanism design because a seller who posts take-it-or-leave-it prices to arriving customers faces exactly this stopping problem on the customers' virtual values; prophet inequalities translate into revenue guarantees for posted price mechanisms relative to Myerson's optimal auction (Chawla, Hartline, Malec and Sivan 2010).
Timeline (as recounted in §1 of the paper):
- Hill and Kertz (1982) characterized, through a recursion, the smallest constants with for i.i.d. nonnegative variables, showed , gave instances where cannot be beaten, and conjectured that is monotone; the computation of its limit was left open.
- Kertz (1986) proved , the solution of the integral equation (2) below, and conjectured that bounds every ; the best uniform bound then known was .
- Abolhassani et al. (2017) improved the uniform bound to .
- Correa, Foncea, Hoeksma, Oosterwijk and Vredeveld (EC 2017; Math. Oper. Res. 2021) proved for a threshold rule , so for all and is the tight i.i.d. guarantee.
Setting
Let be i.i.d. nonnegative random variables with distribution function . A threshold rule fixes real numbers and stops at
receiving . Because the thresholds may change with the step , the rule is adaptive; for i.i.d. variables the number of variables already seen is all the history the rule needs.
The analysis works with quantiles. The generalized inverse is , and is the threshold that accepts with probability (with a coin toss to break ties at an atom). The function
is the expected reward from a variable accepted with probability . The quantile stopping rule of Algorithm 2 partitions into intervals , draws an acceptance probability with density proportional to , and stops at step with probability ; its value is . The analysis then passes through the normalizations and , the recursion (8)–(9) on , and the differential equation
Formalization targets
Goal: Theorem 2
Let be the unique solution of
For every and every law of nonnegative i.i.d. there are thresholds with
Milestones
In order: the quantile sandwich ; the representation (7) ; the identity "expected reward of the quantile rule at equals "; Lemma 4 (); Lemma 5 ( when all agree); the equivalence of equal with the recursion (8) and ; the closed form (9)–(10); Lemma 6 on (ODE); Proposition D.1; Lemma 7 (); uniqueness of in (2); optimality of the dynamic-programming thresholds; domination of the randomized rule by them; and .
A companion statement records the numerical guarantee .
Significance
The result. Theorem 2 gives the optimal constant of the i.i.d. prophet inequality and, through , shows for every , which settles the problem posed by Hill and Kertz in 1982. Since (Kertz 1986), no rule of any kind achieves a better constant uniformly in . Through the virtual-value connection it implies that, for customers with i.i.d. valuations, an adaptive posted price mechanism earns at least a fraction of the optimal auction's revenue (Corollary 2 of the paper).
Formalizing it. The theorem is proved on paper; no machine-checked proof of it or of any of its lemmas is known. The proof combines a measure-theoretic part (quantile functions, randomized tie-breaking at atoms, Tonelli and integration by parts), a combinatorial recursion, and real analysis of an autonomous ODE with a third-derivative Taylor argument. Formal versions of these parts are reusable: the quantile representation of , the expected reward of a quantile rule, and the optimality of dynamic-programming thresholds are standard tools across prophet inequalities and optimal stopping.
Difficulty
The obvious attempt, computing the optimal dynamic-programming thresholds and bounding their value against , does not lead to a closed-form constant: the optimal values satisfy a nonlinear recursion that depends on the whole distribution. The paper avoids it by analysing a randomized rule whose value is exactly a -weighted average of , which reduces the problem to a distribution-free recursion. Two steps then carry the weight. First, randomizing correctly at atoms of so that every step accepts with probability exactly ; without this, is not the step reward. Second, comparing the discrete recursion (9) with the continuous (ODE): the comparison needs strict convexity and , and the latter holds only because , a standing assumption validated at at the end. The existence of the partition with all equal (a solution of (8) with , , ) is taken from Hill and Kertz and is not proved in the paper.
Formalization scope
Lean conventions:
- The common law is a probability measure on with ; the sample is the coordinate vector of
SamuelCahnProphet.IID.iidLaw μ n(the published i.i.d. setting), and is itsEmax. Coordinates are 0-based; the partition , , and the recursion keep the paper's 1-based index. - All expectations of the random variables, and are lower Lebesgue integrals in ; no integrability is assumed in the goal, so infinite means are covered. Only bounded deterministic integrals (, , (2)) are interval integrals.
- is when no reaches its threshold (the page leaves it undefined; is the least favourable choice).
- The quantile rule's coin at an atom is an independent uniform variable on ; acceptance probabilities are drawn independently with density on .
- enters through (2) and , not through a choice function; uniqueness is a milestone.
- Statements involving , , or the recursion assume (for , ). Lemmas 6 and 7 carry §4's standing assumption ; Proposition D.1 carries . Lemma 6 does not assert existence of a solution of (ODE) on , which fails for .
- The dynamic-programming milestones assume and use the optimal-stopping recurrence ; the page prints , which is a slip.
- The page's "" has its inequality reversed and is not formalized.
A degenerate cannot trivialize the goal: is pinned by (2) and , and the goal is stated for every and every nonnegative law, including laws with infinite mean.
A complete development needs the quantile function of a law on , Tonelli's theorem on product measures, uniqueness for ODEs with locally Lipschitz right-hand side (ODE_solution_unique), and Taylor's theorem; the existence of the Hill–Kertz partition is a further proof obligation. Contributions to any milestone, and reusable lemmas on quantile functions and finite-horizon optimal stopping, are welcome.
Selected references
- J. Correa, P. Foncea, R. Hoeksma, T. Oosterwijk, T. Vredeveld, Posted price mechanisms and optimal threshold strategies for random arrivals, Mathematics of Operations Research 46(4):1452–1478, 2021. https://doi.org/10.1287/moor.2020.1105
- T. P. Hill, R. P. Kertz, Comparisons of stop rule and supremum expectations of i.i.d. random variables, Annals of Probability 10(2):336–345, 1982. https://doi.org/10.1214/aop/1176993861
- R. P. Kertz, Stop rule and supremum expectations of i.i.d. random variables: a complete comparison by conjugate duality, Journal of Multivariate Analysis 19(1):88–112, 1986. https://doi.org/10.1016/0047-259X(86)90095-3
- M. Abolhassani, S. Ehsani, H. Esfandiari, M. T. HajiAghayi, R. Kleinberg, B. Lucier, Beating 1−1/e for ordered prophets, Proc. 49th ACM STOC, 61–71, 2017. https://doi.org/10.1145/3055399.3055479
- S. Chawla, J. D. Hartline, D. L. Malec, B. Sivan, Multi-parameter mechanism design and sequential posted pricing, Proc. 42nd ACM STOC, 311–320, 2010. https://doi.org/10.1145/1806689.1806733