Lecture - Week 7

Multi Objective
Decision Making
Multiple Objectives
• EXAMPLE

• Up to now we considered problems in which the decision maker made a choice

based on how each possible action affected a single variable (or attribute).
• In the news vendor problem, the number of papers ordered was determined by
how this decision affect the.
• In the Colaco example, Colaco’s decision depended on how each of its strategies
affected its final asset position.
• In many situations, however, the action chosen depends on how each possible
action affects more than one attribute or variable.
Examples
1. Suppose that Joe Bunker wants to buy a new car. In choosing which car to buy, Joe may
consider the following attributes of each car:
• Size of car
• Fuel economy of car (miles per gallon)
• Style of car
• Price of car
2. Suppose Joe Bunker has just graduated from the nation’s top business school, Business School
(B.S.) University, and has received five job offers. In choosing which to accept, Joe will consider
the following attributes of each job:
• Starting salary of job
• Location of job
• Degree of interest Joe has in doing the work involved in the particular job
• Long-term opportunities associated with job
Examples
3. Gotham City must determine where to locate a new jetport. In determining the site three factors
(or attributes) must be considered:
• Accessibility of jetport for residents of Gotham City
• Degree of noise pollution caused by the jetport (if the jetport is placed in a densely populated area, noise pollution
will be more serious than if the jetport is placed in a sparsely populated area)
• Size of the jetport (determined in part by the amount of land available at the jetport site)
4. Wivco Toy Corporation is introducing a new product (a globot). Wivco must deter- mine the price
to charge for each globot. Two factors (market share and profits) will affect the pricing decision.
Multiattribute Decision Making without Uncertainty:
Goal Programming
• Suppose a woman believes that there are n attributes that will determine her decision. Let xi(a) be the value of
the ith attribute associated with an alternative a.
• She associates a value v(x1(a), x2(a), . . . , xn(a)) with the alternative a. The function v(x1, x2, . . . , xn) is the
decision maker’s value function.
• If A represents the decision maker’s set of possible decisions, then she should choose the alternative a* (with
level xi* of attribute i) satisfying

• Alternatively, the decision maker can associate a cost c(x1(a), x2(a), . . . , xn(a)) with the alternative a. The
function c(x1, x2, . . . , xn) is her cost function.
• To illustrate the concept of preferential independence, we consider Joe’s search for a job following
graduation. In this situation, attribute 1 would be preferentially independent of attribute 2 if, for
any possible job location, a higher starting salary is preferred to a lower salary.
• As another illustration of preferential independence, suppose that the Griswold family is trying to
determine how to spend Sunday afternoon. Let the two relevant attributes be
• Attribute 1 Choice of activity (either picnic or go to see movie Antarctic Vacation)
• Attribute 2 Sunday afternoon’s weather (either sunny or rainy)
• Suppose that on a sunny day, the picnic is preferred to the movie, but on a rainy day, the movie is
preferred to the picnic. Then attribute 1 is not preferentially independent of attribute 2.
• Again refer to Joe’s search for a job.
• Suppose Joe’s five job offers are located in Los Angeles, Chicago, Dallas, New York, and
Indianapolis.
• If, for any given salary level, Joe prefers to work in Los Angeles, then attribute 2 is pi of
attribute 1.
• If attribute 1 were also pi of attribute 2, then attributes 1 and 2 would be mpi.
Multiattribute Utility Functions
• Now, we discuss the extension of utility theory to situations in which more than
one attribute affects the decision maker’s preferences and attitude toward risk.
• Even in this case, a decision maker who subscribes to the Von Neumann–
Morgenstern axioms will still choose the lottery or the alternative that maximizes
his or her expected utility.
• When more than one attribute affects a decision maker’s preferences, the person’s
utility function is called a multiattribute utility function.
• We restrict ourselves here to explaining how to assess and use multiattribute utility
functions when only two attributes are operative.
Multiattribute Utility Functions
• Suppose a decision maker’s preferences and attitude toward risk depend on two
attributes.
• Let
xi = level of attribute i
u(x1, x2) = utility associated with level x1 of attribute 1 and level x2 of
attribute 2
• How can we find a utility function u(x1, x2) such that choosing a lottery or
alternative that maximizes the expected value of u(x1, x2) will yield a decision
consistent with the decision maker’s preferences and attitude toward risk?
• In general, determination of u(x1, x2) (or, in the case of n attributes, determination
of u(x1, x2, . . . , xn)) is a difficult matter. Under certain conditions, however, the
assessment of a utility function u(x1, x2) is greatly simplified.
Properties of Multiattribute Utility Functions
 Example:
Fruit Company Co.
Solution
Problems
Problem 2
Problem 3