Article ID: | iaor20031693 |
Country: | United States |
Volume: | 31 |
Issue: | 2 |
Start Page Number: | 327 |
End Page Number: | 360 |
Publication Date: | Apr 2000 |
Journal: | Decision Sciences |
Authors: | Moskowitz Herbert, Tang Jen, Lam Peter |
Keywords: | utility |
Conventionally, elements of a multiattribute utility model characterizing a decision maker's preferences, such as attribute weights and attribute utilities, are treated as deterministic, which may be unrealistic because assessment of such elements can be imprecise and erroneous, or differ among a group of individuals. Moreover, attempting to make precise assessments can be time consuming and cognitively demanding. We propose to treat such elements as stochastic variables to account for inconsistency and imprecision in such assessments. Under these assumptions, we develop procedures for computing the probability distribution of aggregate utility for an additive multiattribute utility function, based on the Edgeworth expansion. When the distributions of aggregate utility for all alternatives in a decision problem are known, stochastic dominance can then be invoked to filter inferior alternatives. We show that, under certain mild conditions, the aggregate utility distribution approaches normality as the number of attributes increases. Thus, only a few terms from the Edgeworth expansion with a standard normal density as the base function will be sufficient for approximating an aggregate utility distribution in practice. Moreover, the more symmetric the attribute utility distributions, the fewer the attributes to achieve normality. The Edgeworth expansion thus can provide a basis for a computationally viable approach for representing an aggregate utility distribution with imprecisely specified attribute weights and utilities assessments (or differing weights and utilities across individuals). Practical guidelines for using the Edgeworth approximation are given. The proposed methodology is illustrated using a vendor selection problem.