A note on construction of a composite index by optimization of Shapley value shares of the constituent variables

Sudhanshu Mishra ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper proposes a method to construct composite index, which is a linear combination of several variables, by deriving weights on the criterion of Shapley value (from cooperative game theory) that a constituent variable has in making the composite index. In practice it is found oftentimes that the most common method of principal component analysis has a tendency to ignore (or poorly weigh) those constituent variables that do not have strong correlation with the sister variables. This elitist nature of PCA forces a compromise upon the analyst’s desire and need to incorporate those weakly correlated (but theoretically and practically important) variables into the composite index. In that case, one must construct a composite index that is more inclusive in nature. The Shapley value based composite index meets that requirement.

Keywords: Shapley value; Composite index; Principal Component Analysis; Inclusive indices; Global optimization (search for similar items in EconPapers)
JEL-codes: C43 C61 C63 C71 (search for similar items in EconPapers)
Date: 2016-07-02
New Economics Papers: this item is included in nep-gth and nep-hpe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/72330/1/MPRA_paper_72330.pdf original version (application/pdf)

Related works:
Journal Article: BA Note on Construction of a Composite Index by Optimization of Shapley Value Shares of the Constituent Variables (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:72330

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().