Multiattribute Utility Theory concepts application examples Objectives ECONOMIC

Multiattribute Utility Theory concepts application examples

Objectives • ECONOMIC POLICY • • maximize production equalize distribution • GOVERNMENT POLICY • reconcile many interest groups • BUSINESS • • reconcile short run/long run tradeoffs utlize long range planning (maintenance, labor)

BUSINESS OBJECTIVES • PROFIT • short run cash flow, after tax profit, long run • RISK • diversify, hedge • MARKET DEVELOPMENT • new products, wider market, quality • CAPITAL REPLENISHMENT • LABOR RELATIONS

Multiobjective Problems • • Energy Policy health, environment, self-determination Administration budgeting, setting objectives Government services, location, tax rates Water Resources Management NASA project selection MIS system selection POM vendor selection

Finnish Energy Policy • Finland running out of energy in early 1980 s • alternatives: large nuclear large coal conservation & small plants • 1984 2 companies applied for a nuclear plant

Hierarchy alternatives of nuclear, coal, & conservation below each lower element • Used by members of Parliament • after Chernobyl, dropped nuclear

Selection Techniques many techniques exist to support selection decisions • multi-attribute utility theory (MAUT) • simple multi-attribute rating technique (SMART) • analytic hierarchy process (AHP) • French methods (outranking) • Russian methods (ordinal)

MAUT concepts rigorously measure value vj • identify what is important (hierarchy) • identify RELATIVE importance (weights wk) • identify how well each alternative does on each criterion (score sjk) • can be linear vj = wk sjk • or nonlinear vj = { (1+Kkjsjk) - 1}/K

MAUT concepts • basis: there is a single dimensional value measure – it is cardinal, can be used for ranking • analyst’s job - find that function – (measure accurately) – scores – weights

caveats • people buy insurance (expected payoff < cost) because they avoid risk • people gamble (expected payoff << cost) because they are entertained • utility theory NORMATIVE (how we SHOULD act) • utility not necessarily additive [value of 8 eggs not always = 4 x(value of 2 eggs)] money CAN serve as utility measure

conclusions • MAUT considered the “scientific” approach • focuses: – measure as accurately as possible – identify utility function as accurately as possible – be as objective as possible

SMART • MAUT is a little abstract – difficult to accurately develop tradeoffs • SMART based on the same theory – simpler implementation – linear form – direct entry of relative scores & weights

SMART technique 1. identify person whose utilities are to be maximized 2. identify the issue or issues 3. identify the alternatives to be evaluated 4. identify the relevant dimensions of value for evaluating alternatives (attribute scales) 5. rank the dimensions in order of importance 6. rate dimensions in importance, preserving ratios 7. sum the importance weights, & divide by total(wi) 8. measure how well each alternative does on each dimension(sij) 9. U = wi sij

points • in Step 4, limit criteria – there are only so many things a human can keep track of at one time – 8 plenty – if weight extremely low, drop

methodology • Step 4: Jobs: Big 5 firm, dot. com, local bank • Step 5: rank order criteria – – – Experience (no value to cutting edge); Pay ($25 k to $50 k); Location (unattractive to great); Workload (40 hours/week to 80 hours/week) Travel (very heavy to a little travel) • Step 6: rate dimensions – least important = 10: location = 20 travel = 10 pay = 30 workload = 15 experience = 45

methodology Step 7: Develop weights Divide by total check: 100 for best Experience 45/120 = 0. 375 100/260 = 0. 385 Pay 30/120 = 0. 250 70/260 = 0. 269 Location 20/120 = 0. 167 40/260 = 0. 154 Workload 15/120 = 0. 125 30/260 = 0. 115 Travel 10/120 = 0. 083 20/260 = 0. 077 average 0. 38 0. 26 0. 12 0. 08

methodology • purpose of swing weighting – Consider difference in scales – The input is admittedly an approximation – Giving values based on a different perspective • additional check • should yield greater accuracy

scores • Step 8: score each alternative on each criterion • need as objective a scale as you can get • doesn’t have to be linear 0 worst ideal 1. 0 Experience none (0) focused (0. 3) general (0. 9) cutting edge (1. 0) Pay $25 k (0) $30 k (0. 5) $35 k (0. 7) $40 k (0. 8) $50 k (1. 0) Location bad (0) Dallas (0. 7) Austin (0. 9) Bryan (1. 0)

Scores Big 5 Dot. com Local bank Experience General 0. 9 Cut. Edge 1. 0 Focused 0. 3 Pay $40 k 0. 8 $35 k 0. 7 $30 k 0. 5 Location Dallas 0. 7 Austin 0. 9 Bryan 1. 0 Workload 70 hr 0. 2 50 hr 0. 8 $40 k 1. 0 Travel Lots 0. 3 10% 1. 0 None 0. 4

calculation of value Step 9: weights scores: Big 5 Dot. com Local bank U = wi sij EXP 0. 38 PAY 0. 26 0. 9 1. 0 0. 3 0. 8 0. 7 0. 5 LOC WOR TRA 0. 16 0. 12 0. 08 TOTALS 0. 7 0. 2 0. 3 0. 710 0. 9 0. 8 1. 0 0. 826 0. 1 0. 4 0. 304 recommends the Dot. com

SMART • provides a very workable means to implement the principles of MAUT • in fact, it can be MORE accurate than MAUT (more realistic scores, tradeoffs) identify criteria develop scores over criteria identify alternatives available, measure scores simple calculation

selecting nuclear depository Keeney, An analysis of the portfolio of sites to characterize for selecting a nuclear repository, Risk Analysis 7: 2 [1987] DOE - dump nuclear waste - selected Hanford, WA NAS criticized selection method - said use MAUT IDENTIFY OBJECTIVE HIERARCHY objectives attributes measures DETERMINE RELATIVE IMPORTANCE lottery tradeoffs RANK by value = weights x scores

DOE objectives • at depository • in transit worker health effects worker fatalities public health effects public fatalities • environmental aesthetic degradation biological degradation of archaeological, historical & cultural properties • socioeconomic • cost repository costs waste transportation costs

Nuclear Depository • MAUT separated facts from values • explicit professional judgments identified • 14 criteria • each alternative’s value on each criterion measured with metric making sense relative to the decision (radiation - expected deaths rather than rads) • interviewed policy makers for tradeoffs

Nuclear Depository • Keeney comments: – the four policy makers tended to share values – “public utility probably should be linear” • ended up digging at Yucca Mountain, Carlsbad • catch - can’t use either

Hens Pastijn & Struys, “Multicriteria Analysis of the Burden Sharing in the European Community, ” EJOR 59 1992 248 -261 • European Community – 1958 to 1974 financed by direct contributions by member states – Treaty of Rome fixed proportional contributions reflecting ability, advantage – disputes about distribution of funds since early 1970 s • Study of equity of present system

European Community revenues • • External tariff - 20. 1% in 1989 agricultural import levies - 2. 9% sugar storage levies - 2. 9% VAT contributions - 56. 8% – on goods and services – 1988 added element based on GNP • GDP-based contributions - 17. 2%

European Community Financing - 1989 Percent of EC Funding Contributed Germany France Italy Great Britain Spain Netherlands 26. 4% Belgium 20. 5% Denmark 15. 4% Greece 14. 8% Portugal 1. 1% 7. 4% Ireland 6. 0% Luxemburg 0. 2% 4. 1% 2. 2% 1. 2% 0. 8%

European Community Financing • Problems: – country of port of entry may not be destination (Rotterdam effect) but customs collected in the Netherlands – Belgium, Denmark, Germany, Ireland, Luxembourg & the Netherlands paid more than their relative share of GDP – BENEFIT PRINCIPLE - those who benefit should pay the tax

Reform Proposals • 1976 Financial Mechanism: refund payable if contribution significantly higher than proportionate share of GNP – didn’t work as planned • 1984 corrective mechanism: rebate of 66% of difference between VAT payment & budget expenditure share

criteria • • GDP/population POL - political willingness to cooperate EX/GDP - exports per GDP BEN/POP - EC payments/population – USED AHP TO GET WEIGHTS!

Weight Sets Scen 1 Scen 2 Scen 3 Scen 4 Scen 5 GDP/POP POL EX/GDP BEN/POP . 25. 25 . 4. 4. 05. 15 . 53. 27. 07. 13 . 53. 13. 07. 27 1. 0 -

Proportional Contributions 1989 Scen 4 Germany 26. 36 France 21. 09 Italy 15. 43 Great Britain 14. 77 Spain 7. 36 Netherlands 5. 97 Belgium 3. 23 Denmark 2. 19 Scen 1 Scen 2 Scen 3 Scen 5 26. 11 26. 10 26. 39 26. 33 26. 22 20. 49 21. 59 21. 79 21. 60 21. 45 17. 23 17. 50 17. 22 17. 07 17. 30 14. 51 14. 87 15. 16 15. 74 6. 25 6. 37 6. 28 6. 27 5. 60 5. 37 5. 29 5. 26 5. 09 4. 12 3. 48 3. 31 3. 25 3. 24 2. 48 2. 40 2. 45 2. 51 2. 43

conclusions • Great Britain should pay more if weight higher for progressivity • Italy should pay less than GDP, but more than they currently do • France & Denmark should pay more • smaller countries should pay less

Disposition of Weapons Grade Plutonium end of cold war desire for disarmament want to get rid of plutonium

Clinton Directive September 1993 • Where possible, eliminate stockpiles of HEU & Pu, ensure they are subject to highest standards of safety, security, international accountability • Try to purchase HEU from former USSR & other countries and convert to reactor fuel • Start comprehensive review of long-term options for Pu disposition, considering technical, nonproliferation, environmental, budgetary, & economic factors; invite international participation

Problem Scope • about 50, 000 tons of Pu is surplus in US • about twice that amount surplus in former USSR • form is pits (warheads) at plants ready to make warheads at breeder reactors (Pu production facilities) contaminated waste (gloves, etc. )

Plutonium Characteristics • • artificial EXTREMELY toxic very long half-life (centuries) NOT a particularly efficient reactor fuel, but can be used – if used in reactors, there still would be about 92% of Pu left over (but it would not be suitable for weapons) – lots of other spent fuel Pu, but has natural barrier (you die if you pick it up)

Disposition Process • transport warhead Pu to oxidation site • oxidize Pu to Pu. Ox • Process – vitrify: apply radionuclide, encase in matrix – borehole: vitrify (or none) – reactor: burn • permanent storage

Decision Process • Notice of Intent for Programmatic Environmental Impact Statement 21 Jun 1994 • Department of Energy – Office of Fissile Materials Disposition • want Documented Record of Decision – phase 1: SCREENING 17 Mar 95 41 options down to 11 – phase 2: multiattribute analysis 1 -3 – phase 3: final decision down to

Screening Criteria • disposition – – – – – long term storage resistance to theft & diversion by unauthorized parties resistance to retrieval, extraction, & reuse by host nation technical viability * environmental, safety, & health cost effectiveness timeliness foster progress & cooperation with Russia and others public & institutional acceptance * additional benefits * * *

Disposition Options • storage options – no disposal action baseline – radiation barrier alloy X: open-ended, ES&H • immobilization with radionuclides – underground nuclear detonation X: ES&H, licensing/regulatory – borosilicate glass immobilization (DWPF) X: ES&H, cost – borosilicate glass immobilization (new) reasonable – ceramic immobilization reasonable – electrometallurgical treatment reasonable – borosilicate glass oxidation/dissolution

Disposition Options • direct disposal options – – – direct emplacement in HLW repository X: retrievable, time deep borehole (immobilized) reasonable deep borehole (direct emplacement) reasonable discard to WIPP X: capacity hydraulic fracturing X: technical viability deep well injection X: ES&H injection into continental magma X: technical viability, ES&H melting in crystalline rock X: technical viability, ES&H disposal under ice caps X: technical viability, ES&H seabed (placement on ocean floor) X: technical viability ocean dilution X: ES&H, treaty deep space launch X: retrievability, ES&H

Disposition Options • Reactor & Accelerator Options – – – Euratom MOX fabrication/reactor burning reasonable existing light water reactors (LWRs) reasonable partially completed LWRS reasonable evolutionary or advanced LWRS reasonable naval propulsion reactors X: transparency modular helium reactors (MHRS) X: technical maturity CANDU heavy water reactors reasonable ALMRS with pyroprocessing X: technical maturity, ES&H accelerator conversion X: technical maturity LWRS with reprocessing X: theft diversion, policy ALMRS with recycle X: technical maturity, policy – particle bed, molten salt reactors X: technical maturity

Phase 2: MAUT Analysis • Decision maker - Secretary of Energy • Project manager - Office of Fissile Materials Disposition • Technical Analysis - National Laboratories – Livermore, Oak Ridge, Sandia • MAUT Framework - Pantex – UT, Texas A&M

Phase 2 Purpose • to generate a multiattribute utility model option score=sum(weights*obj scores) • National Laboratories - give accurate estimates of each option’s score on each objective • OFMD - source of relative weights

Phase 2 Objectives evolutionary - this was the initial set • non-proliferation parties max resistance to theft from unauthorized max resistance to diversion by host nation max international cooperation & compliance • operational effective max technical viability max cost effectiveness max timeliness max additional benefits • env, saf, & health protect human health & safety protect the natural environment protect the human environment • public & institutional acceptance

Phase 2 Objectives Non. Proliferation Theft material characteristics environment safeguards & security Diversion material characteristics environment safeguards & security Irreversibility form location International Cooperation Russian civil use of plutonium Timeliness start year time to complete

Phase 2 Objectives Operational Effectiveness Technical Maturity Cost Investment Cost Life Cycle Cost Environment, Safety, & Health Human Health & Safety Natural Environment Socio-Economic (last 3 measures had many sub-measures)

BANKADVISOR • Mareschal & Brans, EJOR [1991] • use PROMETHEE as a bank DSS • evaluate firms relative to their competitors • input balance sheets, income statements (4 yr) • identify ratios – management • commercial • industrial • financial

BANKADVISOR • PHASE I: display firm financial data firm specific • PHASE II: industrial evaluation comparative • each firm an alternative • criteria types: solvency rations liquidity ratios profitability ratios management ratios

Croatian Highways • Mladineo, Lozic, Stosic, Mlinaric & Radica, EJOR [1992] • pick highway route • 4 alternatives (2 coastal, 2 inland) • interdisciplinary local interests social interests

Croatian Highways • • 27 criteria TRAFFIC ENGINEERING/TECHNICAL CIVIL ENGINEERING DEMOGRAPHIC ENVIRONMENTAL SOCIO-ECONOMIC

Jordanian Water • Abu-Taleb & Mareschal EJOR [1995] • 18 CRITERIA: over time, government had developed 18 these prioritized by PROMETHEE II study • groundwater quality, quantity, extractions conservation, cost, supply, efficiency • sanitation, output value, surface quality& quantity • irrigated area, energy, land quality, sedimentation, recreation, air quality, foreign labor

Jordanian Water • Constraints – capital budget – operating budget – geographical dispersion – incompatability (bar overlapping combinations) • PROMETHEE V gives optimal portfolio with net flows as objective function coefficients

Conclusions • Multiple attributes can be important in many categories of decision making • A number of techniques exist • Systematic – As objective as possible – Preference of decision maker inherently subjective