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Integration of Prospect Theory into the Outranking Approach PROMETHEE

In: Operations Research Proceedings 2014

Author

Listed:
  • Nils Lerche

    (Georg-August-University Göttingen)

  • Jutta Geldermann

    (Georg-August-University Göttingen)

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.

Suggested Citation

  • Nils Lerche & Jutta Geldermann, 2016. "Integration of Prospect Theory into the Outranking Approach PROMETHEE," Operations Research Proceedings, in: Marco Lübbecke & Arie Koster & Peter Letmathe & Reinhard Madlener & Britta Peis & Grit Walther (ed.), Operations Research Proceedings 2014, edition 1, pages 363-368, Springer.
    • Handle: RePEc:spr:oprchp:978-3-319-28697-6_51
    DOI: 10.1007/978-3-319-28697-6_51
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