Branch-and-Bound Algorithms for Assortment Optimization Under Weakly Rational Choice

Abstract

We study the static assortment optimization problem under weakly rational choice models, i.e. models in which adding a product to an assortment does not increase the probability of purchasing a product already in that assortment. This setting applies to most choice models studied and used in practice, such as the multinomial logit and random parameters logit models. We give a mixed-integer linear optimization formulation with an exponential number of constraints, and present two branch-and-bound algorithms for solving this optimization problem. The formulation and algorithms require only black-box access to purchase probabilities, and thus provide exact solution methods for a general class of discrete choice models, in particular those models without closed-form choice probabilities. We show that one of our algorithms is a PTAS for assortment optimization under weakly rational choice when the no-purchase probability is small, and give an approximation guarantee for the other algorithm which depends only on the prices of the products. Finally, we test the performance of our algorithms with heuristic stopping criteria, motivated by the fact that they discover the optimal solution very quickly.

Keywords: assortment optimization, choice models, non-parametric choice, mixed-integer optimization, branch-and-bound, approximation schemes