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Cross-efficiency evaluation in data envelopment analysis based on prospect theory

Hui-hui Liu, Yao-yao Song and Guo-liang Yang

European Journal of Operational Research, 2019, vol. 273, issue 1, 364-375

Abstract: Cross-efficiency evaluation in data envelopment analysis (DEA) is a useful tool in evaluating the performance of decision-making units (DMUs). It is generally assumed that decision makers (DMs) are completely rational in common cross-efficiency evaluation models, which fail to consider the DM's risk attitude that plays an important role in the evaluation process. To fill this gap, we investigate the cross-efficiency evaluation in DEA based on prospect theory. First, we introduce a prospect value of the DMU to capture the non-rational psychological aspects of a DM under risk. Second, based on the prospect value, we propose a new cross-efficiency model termed the prospect cross-efficiency (PCE) model. Particularly, some existing cross-efficiency evaluation models can be deemed as the special cases of the PCE model with suitable adjustments of the parameters. Furthermore, this paper provides an empirical example to evaluate cross-efficiency with several selected universities directly managed by the Ministry of Education of China to illustrate the effectiveness of the PCE model in ranking DMUs.

Keywords: Data envelopment analysis; Cross-efficiency; Prospect theory; Risk attitude (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:ejores:v:273:y:2019:i:1:p:364-375