Integration of Prospect Theory into the Outranking Approach PROMETHEE

Nils Lerche () and Jutta Geldermann ()
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Nils Lerche: Georg-August-University Göttingen
Jutta Geldermann: Georg-August-University Göttingen

A chapter in Operations Research Proceedings 2014, 2016, pp 363-368 from Springer

Abstract: Abstract Outranking methods as a specific application of Multi-Criteria Decision Analysis (MCDA) are applied to structure complex decision problems as well as to elicitate the decision makers preferences. Therefore, a consideration of behavioral effects within outranking-methods seems to be meaningful. Several behavioral effects and biases have been identified in previous studies, however, only few approaches exist to consider such behavioral issues within the application of MCDA-methods explicitly. The prospect theory developed by Kahneman and Tversky (1979) represents one of the most prominent theories from behavioural decision theory. Their findings concerning the decision behaviour of humans, e.g. loss aversion or reference dependency, are broadly supported and confirmed through a variety of empirical research. Hence, the aim of the presented paper is to integrate these elements from prospect theory within the outranking approach PROMETHEE. For that purpose, an additional discrete reference alternative is incorporated. A case study concerning the sustainable usage of biomass for energy conversion illustrates the new developed method.

Keywords: Preference Function; Prospect Theory; Loss Aversion; Biogas Plant; Decision Table (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:spr:oprchp:978-3-319-28697-6_51

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DOI: 10.1007/978-3-319-28697-6_51

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