Faculty of Business Administration

AIM Seminar

Using Ranked Weights and Acceptability Analysis to Construct Composite Indicator

Dr. Yelin Fu

Department of Industrial and Manufacturing systems Engineering

The University of Hong Kong

Abstract

A variety of published composite indicators, i.e., Energy Trilemma Index and Sustainable Society Index, are commonly aggregated with equal weights. However, this plausible scheme is criticized as eclecticism and ignores the discriminating power of the different indicators. Differing from the traditional methods that assign weights to each indicator for the purpose of aggregation, this paper proposes a new mechanism to construct composite indicators using ranked weights and stochastic multicriteria acceptability analysis. More specifically, this study comprehensively considers all possible preferences among the indicators. Under each preference, we develop a sophisticated mathematical transformation to calculate the least and most favorable scores of each entity, which formulates the lower and upper bounds of the intervals. Then an interval decision matrix, alternatively described as a stochastic decision problem, is formulated to construct the composite indicators. Holistic acceptability indices are generated and regarded as a new composite indicator, which is capable of providing a comprehensive and robust composite indicator with more discriminating power. We apply the proposed method to modify the regional sustainable society index and present the obtained results and comparisons.