Presentation on theme: "Multiobjective Value Analysis. A procedure for ranking alternatives and selecting the most preferred Appropriate for multiple conflicting objectives."— Presentation transcript:
The Value Function Approach Determine a value function which combines the multiple objectives into a single measure of the overall value of each alternative. The simplest form of this function is a simple weighted sum of functions over each individual objective.
Estimating the single objective value functions »Price - price ranges from roughly $300,000 to $600,000 dollars with lower amounts being preferred. »Suppose that a decrease in price from $600,000 to $450,000 will increase value by the same amount as would a decrease in price from $450,000 to $300,000.
The Value Function Approach »This implies that over the range $300,000 to $600,00 the value function for price is linear and the value for each price alternative can be found by linear interpolation. »First set v 1 (389,900)=1 and v 1 (599,000)=0. »Then
»Number of bedrooms - the number of bedrooms for the four alternatives is 3, 4 or 5 with more bedrooms preferred to fewer. »Thus v 2 (5)=1 and v 2 (3)=0. »Suppose the increase in value in going from 3 to 4 bedrooms is twice the increase in value in going from 4 to 5 bedrooms.
The Value Function Approach »Then if the value increase in going from 4 to 5 bedrooms is x, the value increase in going from 3 bedrooms to 4 is 2x. »And since the value increase in going from 3 bedrooms to 5 is 1, 2x+x=1. »Thus x=1/3 and finally the v 2 (4)=0+2(1/3) =.67
The Value Function Approach »Number of bathrooms - The number of bathrooms for the four alternatives are 1.5, 2, 2.5, and 3 with more bathrooms being preferred to fewer bathrooms. »Thus v 3 (3)=1 and v 3 (1.5)=0. »Suppose that the increase in value in going from 1.5 to 2 bathrooms is small and about equal to the increase in value in going from 2.5 to 3 bathrooms. The increase in value in going from 2 to 2.5 bathrooms is more significant and is about twice this value.
The Value Function Approach »Then, the value increase in going from 1.5 to 2 bathrooms is x. The value increase in going from 2 to 2.5 bathrooms is 2x. And the value increase in going from 2.5 to 3 bathrooms is also x. »The sum of the value increases x+2x+x=1 and x=1/4. »So, v 3 (2)=0+x=0+1/4=.25, and v 3 (2.5)=0+x+2x=0+1/4+2/4=.75
The Value Function Approach »Style - there are three house styles available: Ranch, Colonial and Garrison Colonial. »Suppose that Colonial, is most preferred, Ranch is least preferred and the value of Garrison Colonial is about mid-value. »Then v 4 (Colonial)=1, v 4 (Garrison Colonial)=.5 and v 4 (Ranch)=0
The Value Function Approach Determine the weights »Consider the value increase that would result from swinging each alternative (one at a time) from its worst value to its best value (e.g.. the value increase from swinging price from $599,000 to $389,900). »Determine which swing results in the largest value increase, the next largest, etc..
The Value Function Approach »Suppose going from a Ranch to a Colonial results in the largest value increase, going from 3 to 5 bedrooms the second largest, going from 1.5 bathrooms to 3 bathrooms the next largest and swinging price from $599,000 to $389,900 results in the smallest value increase.
The Value Function Approach »Set the smallest value increase equal to w and set each other value increase as a multiple of w. »Suppose the bathroom swing is twice as valuable as the price swing, the style swing is 3 times as valuable as the price swing and the bedroom swing falls about half way in between these two.
The Value Function Approach »Since the single objective value functions are scaled from 0 to 1 the weight for any objective is equal to its value increase for swinging from worst to best. »And because we would like the multiobjective value function to be scaled from 0 to 1, the weights should sum to 1.
The Value Function Approach The weighted sums provide a ranking of the alternatives. The most preferred alternative has the highest sum. The “ideal“ alternative would have a value of 1. The value for any alternative tell us how close it is to the theoretical ideal.