MULTIPLE ATTRIBUTE DECISION MAKING WITH MULTIPLE FORMATS OF ATTRIBUTE ASPIRATIONS: A METHOD BASED ON PROSPECT THEORY

Zhi-Ping Fan (), Xiao Zhang (), Yan-Ru Zhao () and Fa-Dong Chen ()
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Zhi-Ping Fan: Department of Management Science and Engineering, School of Business Administration, Northeastern University, Shenyang, 110819, China
Xiao Zhang: Department of Management Science and Engineering, School of Business Administration, Northeastern University, Shenyang, 110819, China;
Yan-Ru Zhao: Department of Management Science and Engineering, School of Business Administration, Northeastern University, Shenyang, 110819, China
Fa-Dong Chen: Department of Economics, University of Konstanz, Konstanz, 78457, Germany

International Journal of Information Technology & Decision Making (IJITDM), 2013, vol. 12, issue 04, 711-727

Abstract: In this paper, a method based on prospect theory is proposed to solve the multiple attribute decision making (MADM) problem with three formats of attribute aspirations. According to the idea of prospect theory, reference points concerning attributes are first determined. Then, for the three formats of attribute aspirations, the calculation formulae of alternatives' gains/losses concerning attributes are given. By calculating each alternative's gain/loss, a gain–loss matrix is constructed. Further, using the value function from prospect theory and the simple additive weighting method, the overall prospect value of each alternative is calculated. Based on the obtained overall prospect values, a ranking of alternatives can be determined. Finally, a case study is given to illustrate the use of the proposed method.

Keywords: Multiple attribute decision making (MADM); attribute aspiration; prospect theory; reference point; gain; loss (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (7)

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DOI: 10.1142/S0219622013500260

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