Subjective Inputs in MCDM David L. Olson University of Nebraska INFORMS – Miami, November 2001
Basic Preference Model
Can use multiplicative model for interactions
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James G. March
Bell Journal of Economics [1978]
• Rational choice involves guesses:– About future consequences of current actions– About future preferences of those consequences
Administrative Science Quarterly [1996]
• Alternatives & their consequences aren’t given, but need to be discovered & estimated
• Bases of action aren’t reality, but perceptions of reality• Supplemental exchange theories emphasize the role of
institutions in defining terms of rationality
Overview
• Inputs to preference models involve subjectivity– Weights are function of individual
– Scores also valued from perspective of individual
• Subjective assessment MAY be more accurate• Purpose of analysis should be to design better
alternatives
Objective Measures
• Objective preferred– can measure
• past profit, after tax
• Subjective– know conceptually, but can’t accurately
measure• response to advertising
How Subjective Might be More Accurate
• Want to buy house
• Criteria: monthly payment
location
age
• Alternatives: six among hundreds
House Payment Location Age
A 1500 20th & A 40 years
B 1600 30th & B 35 years
C 1700 40th & G 20 years
D 1700 50th & U 30 years
E 1800 51st & V 10 years
F 2000 62th & Y 20 years
Objective: Payment
• Might be able to fit function (could be nonlinear)– Less is always better than more– Continuous
Single-Attribute Utilitiesanchor points given in red
Alt Pay SUF Blocks SUF Age SUF
A 1500 0.857 9 0.850 40 0.271
B 1600 0.772 8 0.867 35 0.390
C 1700 0.656 17 0.717 20 0.695
D 1700 0.656 41 0.317 30 0.500
E 1800 0.500 43 0.283 10 0.860
F 2000 0.000 57 0.050 20 0.695
Weight Tradeoffs
• Location > Pay[0,2000]>[60,1200] [0,2000]=[20,1200]• Age > Pay[0,2000]>[50,1200] [0,2000]=[30,1200]• Weights:
– Pay 0.167– Location 0.500– Age 0.333
Caveats
• There could be preferential dependence– System allows for nonlinear interaction
• Location not as simple as objectively measured– Could improve by splitting
• Minimize distance from work• Comfort zone – want at least 5 blocks from work• Close to school – but not across the street• Pleasantness of the area not a function of distance
• Age could be non-monotonic– Prefer 5 years old to new– Between 5 and 30, prefer newer– Over 30 gains in value
Subjective Assessment more flexible - Location
Not simply a function of distance (A & B)
Even if it were, too close & too far both bad
Alt Blocks Objective Subjective
A 9 0.857 0.3
B 8 0.867 0.5
C 17 0.717 0.6
D 41 0.317 0.7
E 43 0.283 0.6
F 57 0.050 0.4
Subjective Assessment - Age
• New good (but broken in a little better); Very old is good too
Alt Age Objective Subjective
A 40 0.271 0.7
B 35 0.390 0.6
C 20 0.695 0.7
D 30 0.500 0.5
E 10 0.860 0.8
F 20 0.695 0.7
Mixed Assessmentobjective in blue; subjective in red
• Alt Pay SUF Blocks SUF Age SUF
• A 1500 0.857 9 0.3 40 0.7
• B 1600 0.772 8 0.5 35 0.6
• C 1700 0.656 17 0.6 20 0.7
• D 1700 0.656 41 0.7 30 0.5
• E 1800 0.500 43 0.6 10 0.8
• F 2000 0.000 57 0.4 20 0.7
ResultantPay would yield A; Location & Age yield E
wgt 0.167 0.5 0.333 Sum
Alt Pay Loc Age Prod Rank
A 0.857 0.3 0.7 0.526 5
B 0.772 0.5 0.6 0.579 4
C 0.656 0.6 0.7 0.643 2
D 0.656 0.7 0.5 0.626 3
E 0.500 0.6 0.8 0.650 1
F 0.000 0.4 0.7 0.433 6
Ilya Prigogine, The End of Certainty, The Free Press, 1996
• Arrow of Time: past & future play different roles– We can see the past (with measurement error)
– The future is unknown• The issue of debate is whether it is knowable
• Decartes & Leibniz sought certainty– Led to Newton & Einstein
• Einstein: physics as triumph of reason over violent world – separate objective from uncertain & subjective
• Science seeks the power of reason
Prigogine
• Conflict: determinism & freedom
• Entropy: some things irreversible
• Natural instability captured in distributions
• Probability is the narrow path between the deterministic world and the arbitrary world of pure chance
Parallels: Probability & Preference
Donald Gillies, Philosophical Theories of Probability, London: Routledge, 2000
• Four interpretations of probability– LOGICAL
• Given same evidence, all rational humans have same belief
– SUBJECTIVE• Differences of opinion are allowed
– FREQUENCY• Probability the limiting frequency of outcome in long series
– PROPENSITY• Inherent propensity: frequency for large number of repetitions
Gillies, cont.
• OBJECTIVE: independent of humans– An ideal, Platonic
– The point, however, is to help humans decide
• SUBJECTIVE:– Preferences inherently subjective
– Utilities of alternatives over criteria also ultimately subjective
• Can measure objectively
• Value to decision maker still subjective
Herbert Simon: Reason in Human Affairs, Stanford University Press, 1983
• Facts usually gathered in with instruments permeated with theoretical assumptions– Impossible to generate unassailable general
propositions from particular facts– None of the rules of inference currently
accepted are capable of generating normative outputs
Simon, cont.
• Subjective Expected Utility– Conceptually deserving a prominent place in Plato’s
heaven of ideas• Impossible to employ
– Assumes human understands the range of alternative choices available, their joint probability distribution
– Never has been applied and never can be• Humans have neither the facts nor consistent structure of
values nor the reasoning power required to apply SEU
Simon, cont.
Instead of SEU, Simon suggested
• Rational adaptation
• Mental models
• Satisficing as a way to cope
March, redux
March & Olsen, Institutional Perspectives on Political Institutions, Governance 9, 1996, 246-264
• Supplemental exchange theories emphasize the role of institutions in defining terms of rational exchange
• Rational action depends on:– subjective perceptions of alternatives– their consequences– and their evaluations
Conclusions-I
• Prigogine: The world involves high levels of uncertainty
• Gillies: Variety of probabilities, including subjective
• Simon: Subjective Expected Utility impossible to employ
• March: Rationality is flexible