A method and system for providing a feedback based dynamic pricing algorithm with an embedded controller for a HOT (High Occupancy Toll) lane. An input-output transfer function of a vehicle flow with respect to a HOT lane can be obtained utilizing a simulation module. A feedback controller combined with, for example, a Smith predictor can be designed to avoid an unstable behavior due to a time delay in the HOT lane, a price regulation, and a large transient caused by an integral part of the controller due to traffic jams. A driver behavior preference model can be derived based on a relationship between a toll rate and several characteristics of the HOT lane and a general purpose lane. The feedback controller and the behavior preference model can then be implemented to set the toll rate in real-time in order to satisfy a desired performance metric.