COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

Lux et veritas

COWLES FOUNDATION DISCUSSION PAPER NO. 1625

Pricing without Priors

Dirk Bergemann and Karl H. Schlag

September 2007

We consider the problem of pricing a single object when the seller has only minimal information about the true valuation of the buyer. Specifically, the seller only knows the support of the possible valuations and has no further distributional information.

The seller is solving this choice problem under uncertainty by minimizing her regret. The pricing policy hedges against uncertainty by randomizing over a range of prices. The support of the pricing policy is bounded away from zero. Buyers with low valuations cannot generate substantial regret and are priced out of the market. We generalize the pricing policy without priors to encompass many buyers and many qualities.

Keywords: Monopoly, Optimal pricing, Regret, Multiple priors, Distribution free

JEL Classifications: C79, D82