Body: <p>I am new to machine learning, so I am not sure which algorithms to look at for my business problem. Most of what I am seeing in tools like KNIME are geared toward making a prediction/classification, and focusing on the accuracy of that single prediction/classification.</p>
  <p>Instead, in general terms, I want to optimize toward maximum profit of a business process/strategy, rather than simply trying to choose the &quot;best&quot; transaction from within a set of possible transactions, which is quite different. The latter approach will simply give the best &quot;transaction success percentage&quot;, without regard for overall profit of the strategy in the aggregate.</p>
  <p>This is how the business problem is structured: Each Opportunity is a type of business strategy &quot;game&quot; between Entities. Each Entity is unaware, unaffected, and uninterested in conditions or events outside of the Opportunity, such as Observers. Each Opportunity is an independent event with no affect on other concurrent or future Opportunities, and with no effect on decisions unrelated to the Opportunity itself. Each Opportunity will have one and only one Awarded Entity, which is the Entity that &quot;wins&quot; the business process.</p>
  <p>Observers, however, may create a Market for each Opportunity. Within such an independent, ephemeral Market, the Observers may bid among themselves as to which Entity will be the Awarded Entity for the Opportunity. Each Bid is a fixed-size transaction. A Bid is associated with only one Entity within the Opportunity. Thus, a Bid is a type of vote on the outcome of the Opportunity. There is no limit to the number of Bids that an Observer may place into the Market, but each Observer may only place Bids on a single Entity within the Market. Thus, the total amount of Bids on an individual Entity within the Opportunity represent the confidence level, within that Market, of the prediction.</p>
  <p>At the resolution of the Opportunity, one Entity will be the Awarded Entity for the Opportunity. This determination is made based on factors outside of the control of the Observers. The Observers have no influence over the Opportunity nor the Entities within it. When the Awarded Entity is determined, the total value of Bids placed on that Entity are refunded to the Observers that placed them. Additionally, the value of all Bids placed on other Entities are shared among the Observers who bid correctly on the Awarded Entity. Each Observer that placed a correct Bid on the Awarded Entity is entitled to a fraction of the remaining Market value, in equal proportion to the number of fixed Bids placed. In other words, the Market is a zero sum scenario. Bids may be placed at any time during the duration of the Opportunity, from when its Market is created, up until a deadline just shortly before its resolution. The total number of outstanding Bids on each Entity is another data point that is available in real time, and which fluctuates during the duration of the Opportunity, based on total Bids placed and the ratios between Bids on each Entity participating in the Opportunity.</p>
  <p>To support the Observers' evaluation and prediction of Awarded Entity within the scope of Opportunities, there are thousands of data points available, as well as extensive history and analytics regarding each Entity involved. Each Observer will employ their own unique strategy to predict Opportunity outcomes. The objective of this algorithm is to optimize a prediction strategy that does not optimize for &quot;percentage of correct predictions&quot;, but rather &quot;maximum gain&quot;. Rather than be &quot;most correct most often&quot;, the model should strive to use the data to create advantages for maximum gain in the aggregate, rather than strive to be the most correct. An Observer is rewarded not for being correct most often, but for recognizing inefficiencies in the Bids within the Market.</p>
  <p>I am considering hand-coding a genetic algorithm for this, so that I can write a custom fitness function that computes overall profitability of the strategy, and run the generations to optimize profit instead of individual selection accuracy. However, I'd rather use an out-of-the-box algorithm supported by a tool like KNIME if possible.</p>
  <p>Thank you!</p>
  
Comments.ContentLicense: CC BY-SA 4.0
Comments.CreationDate: 2020-12-18T20:20:18.270Z
Comments.Text: I believe such an algorithm has been wanted since a million years. Why would you believe it exists? I guess there is none...
Comments.UserDisplayName: Basile Starynkevitch
Comments.ContentLicense: CC BY-SA 4.0
Comments.CreationDate: 2020-12-18T22:30:42.307Z
Comments.Text: This sounds like a reinforcement learning algorithm. Exactly which one depends on more details which we need more context on, for example, at what point does the model know the cost/reward of the transaction it has just taken, at what point does the model know the cost/reward of every transaction given an opportunity (or if it does at all), does executing one transaction affect the future state of the model (which affects future transactions shown and the cost/reward profile of each transaction). Also describing what your training set looks like, and what is each training instance would help
Comments.UserDisplayName: user3667125
Tags: <algorithm><optimization>
Title: What is the best algorithm for optimizing profit, rather than making predictions?
UserDisplayName: Pittsburgh DBA
ThreadText: # What is the best algorithm for optimizing profit, rather than making predictions?
  
  (Asked by: username_0 on 2020-12-18)
  
  I am new to machine learning, so I am not sure which algorithms to look at for my business problem. Most of what I am seeing in tools like KNIME are geared toward making a prediction/classification, and focusing on the accuracy of that single prediction/classification.
  
  Instead, in general terms, I want to optimize toward maximum profit of a business process/strategy, rather than simply trying to choose the "best" transaction from within a set of possible transactions, which is quite different. The latter approach will simply give the best "transaction success percentage", without regard for overall profit of the strategy in the aggregate.
  
  This is how the business problem is structured: Each Opportunity is a type of business strategy "game" between Entities. Each Entity is unaware, unaffected, and uninterested in conditions or events outside of the Opportunity, such as Observers. Each Opportunity is an independent event with no affect on other concurrent or future Opportunities, and with no effect on decisions unrelated to the Opportunity itself. Each Opportunity will have one and only one Awarded Entity, which is the Entity that "wins" the business process.
  
  Observers, however, may create a Market for each Opportunity. Within such an independent, ephemeral Market, the Observers may bid among themselves as to which Entity will be the Awarded Entity for the Opportunity. Each Bid is a fixed-size transaction. A Bid is associated with only one Entity within the Opportunity. Thus, a Bid is a type of vote on the outcome of the Opportunity. There is no limit to the number of Bids that an Observer may place into the Market, but each Observer may only place Bids on a single Entity within the Market. Thus, the total amount of Bids on an individual Entity within the Opportunity represent the confidence level, within that Market, of the prediction.
  
  At the resolution of the Opportunity, one Entity will be the Awarded Entity for the Opportunity. This determination is made based on factors outside of the control of the Observers. The Observers have no influence over the Opportunity nor the Entities within it. When the Awarded Entity is determined, the total value of Bids placed on that Entity are refunded to the Observers that placed them. Additionally, the value of all Bids placed on other Entities are shared among the Observers who bid correctly on the Awarded Entity. Each Observer that placed a correct Bid on the Awarded Entity is entitled to a fraction of the remaining Market value, in equal proportion to the number of fixed Bids placed. In other words, the Market is a zero sum scenario. Bids may be placed at any time during the duration of the Opportunity, from when its Market is created, up until a deadline just shortly before its resolution. The total number of outstanding Bids on each Entity is another data point that is available in real time, and which fluctuates during the duration of the Opportunity, based on total Bids placed and the ratios between Bids on each Entity participating in the Opportunity.
  
  To support the Observers' evaluation and prediction of Awarded Entity within the scope of Opportunities, there are thousands of data points available, as well as extensive history and analytics regarding each Entity involved. Each Observer will employ their own unique strategy to predict Opportunity outcomes. The objective of this algorithm is to optimize a prediction strategy that does not optimize for "percentage of correct predictions", but rather "maximum gain". Rather than be "most correct most often", the model should strive to use the data to create advantages for maximum gain in the aggregate, rather than strive to be the most correct. An Observer is rewarded not for being correct most often, but for recognizing inefficiencies in the Bids within the Market.
  
  I am considering hand-coding a genetic algorithm for this, so that I can write a custom fitness function that computes overall profitability of the strategy, and run the generations to optimize profit instead of individual selection accuracy. However, I'd rather use an out-of-the-box algorithm supported by a tool like KNIME if possible.
  
  Thank you!
  
  **Tags:** algorithm, optimization
  > **Comments:**
  > **username_1**: I believe such an algorithm has been wanted since a million years. Why would you believe it exists? I guess there is none...  
  > **username_2**: This sounds like a reinforcement learning algorithm. Exactly which one depends on more details which we need more context on, for example, at what point does the model know the cost/reward of the transaction it has just taken, at what point does the model know the cost/reward of every transaction given an opportunity (or if it does at all), does executing one transaction affect the future state of the model (which affects future transactions shown and the cost/reward profile of each transaction). Also describing what your training set looks like, and what is each training instance would help  
  
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  ## 0 answers
  
  