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On the Choice of Baselines in Multiattribute Portfolio Analysis: A Cautionary Note

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  • Robert T. Clemen

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

  • James E. Smith

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

Abstract

In multiattribute portfolio optimization, a decision maker must evaluate a number of projects on multiple dimensions and then select the set of projects that optimizes the portfolio's overall value. In this note, we discuss the importance of establishing an appropriate baseline score for not doing a project in multiattribute portfolio analysis. We believe that practitioners often implicitly assume that not doing a project results in the worst possible score on all attributes. We argue that this assumption is often inappropriate and may lead to incorrect recommendations.

Suggested Citation

  • Robert T. Clemen & James E. Smith, 2009. "On the Choice of Baselines in Multiattribute Portfolio Analysis: A Cautionary Note," Decision Analysis, INFORMS, vol. 6(4), pages 256-262, December.
    • Handle: RePEc:inm:ordeca:v:6:y:2009:i:4:p:256-262
    DOI: 10.1287/deca.1090.0158
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    1. Gregory S. Parnell & G. Edgar Bennett & Joseph A. Engelbrecht & Richard Szafranski, 2002. "Improving Resource Allocation Within the National Reconnaissance Office," Interfaces, INFORMS, vol. 32(3), pages 77-90, June.
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    Cited by:

    1. L. Robin Keller & Ali Abbas & Manel Baucells & Vicki M. Bier & David Budescu & John C. Butler & Philippe Delquié & Jason R. W. Merrick & Ahti Salo & George Wu, 2010. "From the Editors..," Decision Analysis, INFORMS, vol. 7(4), pages 327-330, December.
      • L. Robin Keller & Manel Baucells & Kevin F. McCardle & Gregory S. Parnell & Ahti Salo, 2007. "From the Editors..," Decision Analysis, INFORMS, vol. 4(4), pages 173-175, December.
      • L. Robin Keller & Manel Baucells & John C. Butler & Philippe Delquié & Jason R. W. Merrick & Gregory S. Parnell & Ahti Salo, 2008. "From the Editors..," Decision Analysis, INFORMS, vol. 5(4), pages 173-176, December.
      • L. Robin Keller & Manel Baucells & John C. Butler & Philippe Delquié & Jason R. W. Merrick & Gregory S. Parnell & Ahti Salo, 2009. "From the Editors ..," Decision Analysis, INFORMS, vol. 6(4), pages 199-201, December.
    2. Marttunen, Mika & Haara, Arto & Hjerppe, Turo & Kurttila, Mikko & Liesiö, Juuso & Mustajoki, Jyri & Saarikoski, Heli & Tolvanen, Anne, 2023. "Parallel and comparative use of three multicriteria decision support methods in an environmental portfolio problem," European Journal of Operational Research, Elsevier, vol. 307(2), pages 842-859.
    3. Carlos A. Bana e Costa & João Carlos Lourenço & Mónica Duarte Oliveira & João C. Bana e Costa, 2014. "A Socio-technical Approach for Group Decision Support in Public Strategic Planning: The Pernambuco PPA Case," Group Decision and Negotiation, Springer, vol. 23(1), pages 5-29, January.
    4. Morton, Alec, 2015. "Measurement issues in the evaluation of projects in a project portfolio," European Journal of Operational Research, Elsevier, vol. 245(3), pages 789-796.
    5. Juuso Liesiö, 2014. "Measurable Multiattribute Value Functions for Portfolio Decision Analysis," Decision Analysis, INFORMS, vol. 11(1), pages 1-20, March.
    6. Vilkkumaa, Eeva & Liesiö, Juuso & Salo, Ahti & Ilmola-Sheppard, Leena, 2018. "Scenario-based portfolio model for building robust and proactive strategies," European Journal of Operational Research, Elsevier, vol. 266(1), pages 205-220.
    7. Salo, Ahti & Doumpos, Michalis & Liesiö, Juuso & Zopounidis, Constantin, 2024. "Fifty years of portfolio optimization," European Journal of Operational Research, Elsevier, vol. 318(1), pages 1-18.
    8. Eduarda Asfora Frej & Lucia Reis Peixoto Roselli & Alexandre Ramalho Alberti & Murilo Amorim Britto & Evônio de Barros Campelo Júnior & Rodrigo José Pires Ferreira & Adiel Teixeira de Almeida, 2023. "Collaborative Decision Model for Allocating Intensive Care Units Beds with Scarce Resources in Health Systems: A Portfolio Based Approach under Expected Utility Theory and Bayesian Decision Analysis," Mathematics, MDPI, vol. 11(3), pages 1-15, January.
    9. Liesiö, Juuso & Punkka, Antti, 2014. "Baseline value specification and sensitivity analysis in multiattribute project portfolio selection," European Journal of Operational Research, Elsevier, vol. 237(3), pages 946-956.
    10. Liesiö, Juuso & Kee, Taeyoung & Malo, Pekka, 2024. "Modeling project interactions in multiattribute portfolio decision analysis: Axiomatic foundations and practical implications," European Journal of Operational Research, Elsevier, vol. 316(3), pages 988-1000.
    11. Liesiö, Juuso & Salo, Ahti & Keisler, Jeffrey M. & Morton, Alec, 2021. "Portfolio decision analysis: Recent developments and future prospects," European Journal of Operational Research, Elsevier, vol. 293(3), pages 811-825.

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