Decision Making with the Analytic Network Process: Economic, Political, Social and Technological Applications with Benefits, Opportunities, Costs and Risks

363 Pages·2013·2.22 MB·English

by  Thomas L. Saaty

International Series in
Operations Research & Management Science
Thomas L. Saaty
Luis G. Vargas
Decision Making
with the Analytic
Network Process
Economic, Political, Social and Technological
Applications with Benefits, Opportunities,
Costs and Risks
Second Edition
International Series in Operations
Research & Management Science
Volume 195
Series Editor
Frederick S. Hillier
Stanford University, Stanford, CA, USA
Special Editorial Consultant
Camille C. Price
Stephen F. Austin State University, Nacogdoches, TX, USA
For furthervolumes:
http://www.springer.com/series/6161
Thomas L. Saaty Luis G. Vargas
•
Decision Making
with the Analytic
Network Process
Economic, Political, Social and
Technological Applications with
Benefits, Opportunities, Costs and Risks
Second Edition
123
ThomasL. Saaty LuisG.Vargas
KatzGraduate Schoolof Business KatzGraduate Schoolof Business
and College ofBusiness Administration and College ofBusiness Administration
Universityof Pittsburgh Universityof Pittsburgh
Pittsburgh, PA Pittsburgh, PA
USA USA
ISSN 0884-8289
ISBN 978-1-4614-7278-0 ISBN 978-1-4614-7279-7 (eBook)
DOI 10.1007/978-1-4614-7279-7
SpringerNewYorkHeidelbergDordrechtLondon
LibraryofCongressControlNumber:2013935400
(cid:2)SpringerScience+BusinessMediaNewYork2006,2013
Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof
the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations,
recitation,broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,andtransmissionor
informationstorageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilar
methodology now known or hereafter developed. Exempted from this legal reservation are brief
excerpts in connection with reviews or scholarly analysis or material supplied specifically for the
purposeofbeingenteredandexecutedonacomputersystem,forexclusiveusebythepurchaserofthe
work. Duplication of this publication or parts thereof is permitted only under the provisions of
theCopyright Law of the Publisher’s location, in its current version, and permission for use must
always be obtained from Springer. Permissions for use may be obtained through RightsLink at the
CopyrightClearanceCenter.ViolationsareliabletoprosecutionundertherespectiveCopyrightLaw.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this
publicationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexempt
fromtherelevantprotectivelawsandregulationsandthereforefreeforgeneraluse.
While the advice and information in this book are believed to be true and accurate at the date of
publication,neithertheauthorsnortheeditorsnorthepublishercanacceptanylegalresponsibilityfor
anyerrorsoromissionsthatmaybemade.Thepublishermakesnowarranty,expressorimplied,with
respecttothematerialcontainedherein.
Printedonacid-freepaper
SpringerispartofSpringerScience+BusinessMedia(www.springer.com)
Preface
Applications of the Analytic Network Process (ANP) in decision making
demonstratetoourconsiderableamazement,andbywayofvalidation,thatpeople
astheyexperiencelifeknowfarmoreabouttheworldinwhichtheyliveandmore
accuratelythanlanguagealoneallowsthemtoexpress.Logicfollowslanguagein
developingitsanalyticaldetails.Whenwemakedecisionsacrosstheboundariesof
differentareasofinformation,weneedawaytosynthesizeprioritiesinadditionto
using analysis and applying judgments in each area to create these priorities. It is
synthesis that is needed to make good decisions. The network structures used in
thecontextofbenefits,opportunities, costs, andrisks(BOCR)makeitpossibleto
identify, classify, and arrange all the factors and interests that influence the out-
come of a decision. A decision is only as good as the framework we use to
representitsclusters,theirelements,andtheconnectionsweidentifyamongthem
that depict the influences we perceive.
Boththe Analytic Hierarchy Process (AHP) andthe Analytic Network Process
(ANP) were conceived and their theoretical underpinnings were developed by
T. L. Saaty, and there is now an international society on the subject that meets
every two years under the name of ISAHP (International Symposium on the
Analytic Hierarchy Process). The theory of the ANP was first introduced and
simplyillustratedinChap.8ofSaaty’s1980bookMulticriteriaDecisionMaking:
The Analytic Hierarchy Process which was then followed in 1996 by Decision
Making with Dependence and Feedback revised in 2001 to include BOCR and
finallyin2005toincludenegativeprioritiesanddifferentformulasforsynthesisin
Theory and Applications of the Analytic Network Process.
As with our other co-authored book, Decision Making in: Economic, Political,
Social, and Technological Environments with the Analytic Hierarchy Process,
2012, about applications of hierarchies in decision making; this book is about
applying network structures with dependence and feedback in decisions. It is a
collection of selected applications of the ANP to economic, social and political
sciences,andtechnologicaldesign.Ourfriendshiphasoftenbroughtustogetherto
carry out a project that would be onerous for one person to do alone. We enjoy
thinkingofthetopics, motivating theworksandperforming thetaskofcollecting
and bringing together what appears to us to be of potential interest to readers and
usersoftheAnalyticNetworkProcessworldwide.Mostofthesestudieshavebeen
v
vi Preface
edited and shortened but their essence preserved. We believe that the ANP is a
general tool that is helpful in assisting the mind to organize its thoughts and
experiences and to elicit judgments recorded in memory and quantify them in the
formofpriorities,andallowforrepresentingdiverseopinionsafterdiscussionand
debate.
The reader will notice that many of the chapters were developed by more than
one person. We have observed that Co-authorship of the papers and reports is
useful for debating judgments that may otherwise appear too subjective and idi-
osyncratic. Those authors often studied the literature to find out what the real
actors in a problem thought and inferred their judgments from this knowledge.
We have been particularly interested in three themes: economics, the social
sciences and the linking of measurement with human values. The ANP offers
economistsaverydifferentapproachfordealingwitheconomicproblemsthanthe
usual mathematical models on which economics bases its quantitative thinking:
utility theory (with its interval scales and its use of gambles or lotteries to elicit
judgmentsfromdecisionmakers)andlinearprogrammingwhichcanonlyworkon
elementsthatalreadyhavemeasurementscales.Thevarietyofexamplesincluded
herecanperhapsstimulatesomereaderstotryapplyingtheANPapproachthatis
basedonthemuchstronger,absolutescalesusedtorepresentpairwisecomparison
judgments in the context of dominance with respect to a property shared by the
homogeneouselementsbeingcompared.Howmuchorhowmanytimesmoredoes
AdominateB with respect to propertyP? Actuallypeople are able toanswer this
question by using words to indicate intensity of dominance that all of us are
equippedbiologicallytodoallthetime(equal,moderate,strong,verystrong,and
extreme) whose conversion to numbers, validation and extension to inhomoge-
neous elements form the foundation of the AHP/ANP. Priorities are then derived
from the totality of the judgments.
The second theme is concerned with the social sciences. The ANP offers
psychologists, sociologists, and political scientists the methodology they have
sought for some time to quantify and derive measurements for intangibles. We
hopethattheexamplesincludedinthisbookwillenticethemtostudythetheory.
It should quickly become clear that the ANP is the kind of instrument they have
been seeking.
The third theme is concerned with providing people in the physical and engi-
neering sciences with a quantitative method to link hard measurement to human
values.Insuchaprocessoneisabletointerpretthetruemeaningofmeasurements
made on a uniform scale using a unit. Measurements on such scales are only
indicatorsofthestateofthesystem;theyoftendonotrelatedirectlytothevalues
of the human observers of the system.
The variety in this book has been greatly enhanced by the availability of the
SuperDecisions software (www.superdecisions.com), the personal computer
implementation of the ANP that is now used fairly widely by decision makers,
consultants, teachers and students in business and engineering schools.
Preface vii
We would like to thank and acknowledge the contributions of the following
individuals without whom this volume would not have been possible: Iwan Azis,
Andrew R. Blair, Gershon Mandelker, and Rozann Whitaker (Chap. 2).
Acknowledgments
MichaelP.Niemira(Chap. 3),MeganD.FarkasovskyandAnnaGreda(Chap. 4),
Justin Emanuel and Pete Cefalu (Chap. 5), Juan P. Alberio and Suri Mulani
(Chap. 6),H.J.Zoffer(Chap. 7),JoseD.FigueroaandDarylR.Wood(Chap. 8),
Valorie Checque, Larry E. Nolph and Brian R. Patt (Chap. 9), Wiktor Adamus
(Chap. 10), Wen-Lin Kung, Min-Hung Lu and Hsiao-Chi Liu (Chap. 11), Jeff
Freund,Hang-JunKangandSangSooLee (Chap. 12),KirtiPeniwati(Chap. 13),
Jennifer S. Shang (Chap. 14), Jerrold H. May, Jennifer S. Shang and Tammy
Tjader (Chap. 15).
Someofthechaptersinthisvolumewerereportspreparedforgraduatecourses
taughtbythefirstauthor(Chaps. 4–6,8,9,and11)ortheresultsofcollaborations
of the first author (Chaps. 2, 3, 7 and 14) and the second author (Chap. 15) with
colleagues. We are grateful tothese authors for permission toinclude their edited
materials in the book. The excellent collection of articles included here has been
made possible because of their contributions.
ix
Contents
1 The Analytic Network Process . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 World Chess Championship Outcome Validation
of Measurement in a Hierarchy:
Karpov-Korchnoi Match. . . . . . . . . . . . . . . . . . . . . . . . 5
2 The Analytic Network Process (ANP). . . . . . . . . . . . . . . . . . . 5
3 The Supermatrix of a Feedback System
(Saaty 2001a, b, 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4 The Control Hierarchy and What Question to Ask . . . . . . . . . . 11
5 The Benefits, Costs, Opportunities and Risks
and Their Merit Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6 Priorities in the Supermatrix. . . . . . . . . . . . . . . . . . . . . . . . . . 13
7 On the Limit Supermatrix and its Cesaro Sum . . . . . . . . . . . . . 15
8 Rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9 Two Examples of Estimating Market Share . . . . . . . . . . . . . . . 20
9.1 Airline Example (2005) . . . . . . . . . . . . . . . . . . . . . . . . 20
9.2 Wine Example (2005) . . . . . . . . . . . . . . . . . . . . . . . . . 22
10 Group Decision Making. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.1 How to Aggregate Individual Judgments . . . . . . . . . . . . 23
10.2 On the Construction of Group Choice
from Individual Choices. . . . . . . . . . . . . . . . . . . . . . . . 25
10.3 Cardinal Preference Relations. . . . . . . . . . . . . . . . . . . . 27
10.4 Absolute Cardinal Preference Relations . . . . . . . . . . . . . 29
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2 Forecasting the Resurgence of the U. S. Economy in 2001:
An Expert Judgment Approach . . . . . . . . . . . . . . . . . . . . . . . . . 41
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
2 On the Role of Judgment in Economic Forecasting. . . . . . . . . . 41
3 The Setting: An Economic Slowdown After Years
of Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
xi
xii Contents
4 A Holarchy Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.1 Decomposition of the Problem . . . . . . . . . . . . . . . . . . . 44
4.2 Pairwise Comparison. . . . . . . . . . . . . . . . . . . . . . . . . . 45
5 Producing the Forecast of the Recovery. . . . . . . . . . . . . . . . . . 49
6 An ANP Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.1 ANP Structures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.2 Predictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.3 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
3 An Analytic Network Process Model for Financial-Crisis
Forecasting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
2 The ANP Financial Crisis Model Structure . . . . . . . . . . . . . . . 76
3 Building the ANP Financial Crisis Model . . . . . . . . . . . . . . . . 78
4 The 1991 U. S. Banking Crisis. . . . . . . . . . . . . . . . . . . . . . . . 87
5 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
4 Outsourcing a Firm’s Application Development Group . . . . . . . . 93
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
2 The Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
3 BOCR Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
4 Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
5 Sensitivity Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
6 Where to Outsource . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
5 ANWR: Artic National Wildlife Refuge an ANP
Validation Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
2 BOCR Model for ANWR. . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
3 Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
4 Conclusion and Sensitivity Analyses. . . . . . . . . . . . . . . . . . . . 131
6 The Ford Explorer Case. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
2 Creating the Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
2.1 Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
2.2 Cluster Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
2.3 Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136