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Now, Later, or Both: A Closed-Form Optimal Decision for a Risk-Averse Buyer

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Agent-Mediated Electronic Commerce. Designing Trading Strategies and Mechanisms for Electronic Markets (AMEC/TADA 2015, AMEC/TADA 2016)

Part of the book series: Lecture Notes in Business Information Processing ((LNBIP,volume 271))

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Abstract

Motivated by the energy domain, we examine a risk-averse buyer that has to purchase a fixed quantity of a continuous good. The buyer has two opportunities to buy: now or later. The buyer can spread the quantity over the two timeslots in any way, as long as the total quantity remains the same. The current price is known, but the future price is not. It is well known that risk neutral buyers purchase in whichever timeslot they expect to be the cheapest, regardless of the uncertainty of the future price. Research suggests, however, that most people may in fact be risk-averse. If the future price is expected to be lower than the current price, but very uncertain, then they may prefer to purchase in the present, or spread the quantity over both timeslots. We describe a formal model with a uniform price distribution and a piecewise linear risk aversion function. We provide a theorem that states the optimal behavior as a closed-form expression, and we give a proof of this theorem.

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Authors and Affiliations

  1. Centrum Wiskunde & Informatica (CWI), Amsterdam, The Netherlands

    Jasper Hoogland & Han La Poutré

  2. Delft University of Technology, Delft, The Netherlands

    Mathijs de Weerdt & Han La Poutré

Authors
  1. Jasper Hoogland
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  2. Mathijs de Weerdt
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  3. Han La Poutré
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Corresponding author

Correspondence to Jasper Hoogland .

Editor information

Editors and Affiliations

  1. School of Informatics, University of Edinburgh , Cambridge, United Kingdom

    Sofia Ceppi

  2. Department of Computer Science, Ashkelon Academic College , Ashkelon, Israel

    Esther David

  3. Department of EE and CS, Vanderbilt University , Nashville, Tennessee, USA

    Chen Hajaj

  4. Smart Systems Group, Heriot-Watt University , Edinburgh, United Kingdom

    Valentin Robu

  5. Information Technology, The American College of Greece , Agia Paraskevi, Athens, Greece

    Ioannis A. Vetsikas

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Hoogland, J., de Weerdt, M., La Poutré, H. (2017). Now, Later, or Both: A Closed-Form Optimal Decision for a Risk-Averse Buyer. In: Ceppi, S., David, E., Hajaj, C., Robu, V., Vetsikas, I. (eds) Agent-Mediated Electronic Commerce. Designing Trading Strategies and Mechanisms for Electronic Markets. AMEC/TADA AMEC/TADA 2015 2016. Lecture Notes in Business Information Processing, vol 271. Springer, Cham. https://doi.org/10.1007/978-3-319-54229-4_6

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  • DOI: https://doi.org/10.1007/978-3-319-54229-4_6

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  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-54228-7

  • Online ISBN: 978-3-319-54229-4

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