Budget Strategy in Uncertain Environments of Search Auctions: A Preliminary Investigation

How to rationally allocate the limited advertising budget is a critical issue in sponsored search auctions. There are plenty of uncertainties in the mapping from the budget into the advertising performance. This paper presented some preliminary efforts to deal with uncertainties in search marketing environments, following principles of a hierarchical budget optimization framework (BOF). We proposed a stochastic, risk-constrained budget strategy, by considering a random factor of clicks per unit cost to capture a kind of uncertainty at the campaign level. Uncertainties of random factors at the campaign level lead to risk at the market/system level. We also proved its theoretical soundness through analyzing some desirable properties. Some computational experiments were made to evaluate our proposed budget strategy with real-word data collected from reports and logs of search advertising campaigns. Experimental results illustrated that our strategy outperforms two baseline strategies. We also noticed that 1) the risk tolerance has great influences on the determination of optimal budget solutions; 2) the higher risk tolerance leads to more expected revenues.