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Double Helix Value Functions, Ordinal/Cardinal Approach, Additive Utility Functions, Multiple Criteria, Decision Paradigm, Process, and Types (Z Theory I)

Behnam Malakooti ()
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Behnam Malakooti: Systems Engineering, Electrical Engineering and Computer Science Department, Case Western Reserve University, Cleveland, Ohio 44106, USA

International Journal of Information Technology & Decision Making (IJITDM), 2015, vol. 14, issue 06, 1353-1400

Abstract: Z Utility Theory refers to a class of nonlinear utility functions for solving Risk and Multiple Criteria Decision-Making problems. Z utility functions are hybrids of additive and nonadditive (nonlinear) functions. This paper addresses the concepts and assessment methods for the additive part of Z-utility functions for multiple criteria problems that satisfy the efficiency (nondominancy) principle. We provide a decision paradigm and guidelines on how to approach, formulate, and solve decision-making problems. We, also, overview the modeling of decision process based on four types of decision-making styles. For multi-criteria problems, a new definition of convex efficiency is introduced. Also polyhedral efficiency is developed for presenting multi-criteria efficiency (nondominancy) graphically. New double helix quasi-linear value functions for multi-criteria are developed. Two types of double helix value functions for solving bi-criteria (Advantages versus Disadvantages) and also risk problems are introduced: Food–Fun curves for expected values and Fight-Flight curves for expected risk values. Ordinal/Cardinal Approach (OCA) for assessment of additive utility functions is developed. Simple consistency tests to determine whether the assessed utility function satisfies ordinal and/or cardinal properties are provided. We show that OCA can also be used to solve outranking problems. We provide a critique of Analytic Hierarchy Process (AHP) for assessing additive value functions and show that the developed Ordinal/Cardinal Approach overcomes the shortcomings of AHP. We also develop a unified/integrated approach for simultaneous assessment of nonlinear value and additive (multi-criteria) utility functions. These results in an additive utility function that can be concave, convex, or hybrid concave/convex based on the nonlinear value function. Finally, we show an interactive paired comparisons approach for solving nonadditive and nonlinear utility functions for bi-criteria decision-making problems. Several illustrative examples are provided. The paper provides reliable and robust approaches for modeling the utility preferences of heterogeneous economic agents in macro and micro-economics.

Keywords: Nonclassical value functions; ordinal; cardinal; outranking; validation; convex efficiency; polyhedral graphical efficiency; analytic hierarchy process; additive and hybrid concave/convex utility; multiple criteria decision making/multiple attribute utility theory; preference quantification in economics; heterogeneous economic agents preferences (search for similar items in EconPapers)
Date: 2015
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