Controlling Tail Risk in Online Ski-Rental
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The classical ski-rental problem admits a textbook 2-competitive deterministic algorithm, and a simple randomized algorithm that is e/e-1-competitive in expectation. The randomized algorithm, while optimal in expectation, has a large variance in its performance: it has more than a 37 of the competitive ratio exceeding n! We ask what happens to the optimal solution if we insist that the tail risk, i.e., the chance of the competitive ratio exceeding a specific value, is bounded by some constant δ. We find that this additional modification significantly changes the structure of the optimal solution. The probability of purchasing skis on a given day becomes non-monotone, discontinuous, and arbitrarily large (for sufficiently small tail risk δ and large purchase cost n).
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