Models, Methods, Concepts & Applications of the Analytic Hierarchy Process

341 Pages·2012·4.825 MB·English

by  Thomas L. Saaty, Luis G. Vargas (auth.)

International Series in Operations
Research & Management Science
Volume 175
Series Editor
Frederick S. Hillier
Stanford University, CA, USA
Special Editorial Consultant
Camille C. Price
Stephen F. Austin State University, TX, USA
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Thomas L. Saaty Luis G. Vargas
•
Models, Methods, Concepts
& Applications of the
Analytic Hierarchy Process
Second Edition
123
ThomasL. Saaty LuisG.Vargas
KatzGraduate Schoolof Businessand KatzGraduate Schoolof Businessand
College ofBusiness Administration College ofBusiness Administration
Universityof Pittsburgh Universityof Pittsburgh
Mervis Hall,Pittsburgh Mervis Hall,Pittsburgh
PA 15260 PA 15260
USA USA
ISSN 0884-8289
ISBN 978-1-4614-3596-9 e-ISBN978-1-4614-3597-6
DOI 10.1007/978-1-4614-3597-6
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Preface
ThisbookisacollectionofselectedapplicationsoftheAnalyticHierarchyProcess
(AHP) in economic, social, political and technological areas. This volume along
with other volumes on decision making, planning, conflict resolution and fore-
casting, rounds out the diversity of application areas of the AHP.
We have been particularly interested in three themes: economics, the social
sciences and the linking of measurement with human values. The AHP offers
economists a substantially different approach to deal with economic problems
through ratio scales. The main mathematical models on which economics has
based its quantitative thinking up to now are utility theory which uses interval
scales and linear programming. The axiomatic foundation of utility theory uses
gamblesorlotteriestoelicitjudgmentsaboututilitiesfromdecisionmakers.Over
theyears,practitionersofutilitytheoryhaveencounteredparadoxesthatcontradict
the basic axioms of their theory. Some of the developers of the paradoxes have
even won Nobel prizes for their findings. We hope that the variety of examples
included here can perhaps stimulate some readers to try applying this new
approach.
The second theme is concerned with the social sciences. The AHP offers
psychologists, sociologists and political scientists the methodology they have
sought for some time to quantify and derive measurements for intangibles. We
hopethattheexamplesincludedinthisbookwillinducethemtostudythetheory.
It should quickly become clear that the AHP 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. In such a process one needs to interpret what the measurements mean.
Anumberisuselessuntilsomeoneunderstandswhatitmeans.Itcanhavedifferent
meanings in different problems. Ten dollars are plenty to satisfy ones hunger but
are useless by themselves in buying a new car. Such measurements are only
indicators of the state of a system, but do not relate to the values of the human
observers of that system.
v
vi Preface
Manyoftheapplicationsinthisbookweresponsored,co-authoredorsupervised
bythefirstauthorinhisclassesandinhisresearch,andsomebythesecondauthor.
Our friendship has often brought us together to carry out a project that would
otherwise be onerous for one person to do. We enjoy thinking of the topics,
motivating the works and performing the task of collecting and bringing together
whatappearstousofpotentialinteresttoreadersandusersoftheAnalyticHierarchy
Process. Most of these studies have been edited and shortened but their essence
preserved.WebelievethattheAHPisageneraltoolthatishelpfulinassistingthe
mind to organize its thoughts and experiences and to elicit judgments recorded in
memory.
The first author has already put together another volume on applications with
feedback and dependence using the network version of the AHP known as the
AnalyticNetworkProcess(ANP).Thattopicisalsostudiedbythefirstauthorina
chapterofhisbook‘‘FundamentalsofDecisionMakinginPriorityTheorywiththe
Analytic Hierarchy Process’’ published in 1994 as the sixth volume of the AHP
seriesandinanewbookentitled‘‘TheAnalyticNetworkProcess’’firstpublished
in 1996 and revised in 2001.
We would like to thank and acknowledge the contributions of the following
individuals without whom this volume would not have been possible: Miguel
Beltran (Chap. 3), Arthur P. Dobias (Chap. 5), Graydon L. Karlson (Chap. 6),
Thomas Palamides, Dermot Gray and Dennis DiPalma (Chap. 7), Vasudevan
Ramanujam (Chap. 9), Gianfranco Tripido and Natalino Dazzi (Chap.10), Yoram
Wind (Chap. 11), Katheleen A. Broker, Carol A. Calloway, Alberto L. Casadei,
Jeffrey M. Jacobs, Vincent J. Kruse and Matthew W. Miller (Chap. 12), Andrew
Blair and Robert Nachtmann (Chap. 13), H. J. Zoffer (Chap. 15), Charmienne M.
Ganao and Betsy Monroe (Chap. 16), Michael Gillespie and Stephen E. Katch
(Chap. 17), Dan Caste and Michael Saghy (Chap. 18), Delena Spencerand Marie
Reed (Chap. 19), Wendy Ann Clayton, Melissa Wright and Wendy Snodgrass
Sarver(Chap.20),HameedG.NezadandAlanBaharlou(Chap.21),J.W.France
andKathyR.Valentine(Chap.22),SudhaIyengarandVijayaGhandi(Chap.23),
and Thomas A. Kasperski, John J. Umphred and Andrew F. Firlik (Chap. 24).
Someofthechaptersinthisvolumewerereportspreparedforgraduatecourses
taught by the first author (Chaps. 3, 5–7, 9 , 10, 16–21, 23 and 24) and by the
second author (Chap. 12). We are grateful to these authors for permission to
include their edited materials in the book. The excellent collection of articles
included here has been made possible because of their contributions.
Contents
1 How to Make a Decision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 How to Structure a Decision Problem. . . . . . . . . . . . . . . . . . 2
1.3 Philosophy, Procedure and Practice of the AHP. . . . . . . . . . . 3
1.4 Absolute and Relative Measurement
and Structural Information. . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 The Fundamental Scale. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.6 Comments on Benefit/Cost Analysis. . . . . . . . . . . . . . . . . . . 7
1.7 The Eigenvector Solution for Weights and Consistency . . . . . 7
1.8 How to Structure a Hierarchy . . . . . . . . . . . . . . . . . . . . . . . 9
1.9 Hierarchic Synthesis and Rank. . . . . . . . . . . . . . . . . . . . . . . 10
1.10 Normative: Descriptive . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.11 Rationality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.12 Examples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.13 Absolute Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.13.1 Evaluating Employees for Raises . . . . . . . . . . . . . . . 16
1.13.2 Organ Transplantation. . . . . . . . . . . . . . . . . . . . . . . 17
1.14 Applications in Industry and Government . . . . . . . . . . . . . . . 18
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2 The Seven Pillars of the Analytic Hierarchy Process . . . . . . . . . . 23
2.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.2 Ratio Scales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.3 Paired Comparisons and the Fundamental Scale. . . . . . . . . . . 29
2.4 Sensitivity of the Principal Eigenvector Places a Limit
on the Number of Elements and Their Homogeneity . . . . . . . 31
2.5 Clustering and Using Pivots to Extend the Scale
from 1–9 to 1–?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.6 Synthesis: How to Combine Tangibles With
Intangibles—Additive Versus Multiplicative . . . . . . . . . . . . . 33
vii
viii Contents
2.7 Rank Preservation and Reversal. . . . . . . . . . . . . . . . . . . . . . 35
2.7.1 Guidelines for Selecting the Distributive
or Ideal Mode . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.8 Group Decision Making . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.8.1 How to Aggregate Individual Judgments. . . . . . . . . . 38
2.8.2 On the Construction of Group Choice
from Individual Choices . . . . . . . . . . . . . . . . . . . . . 39
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3 Architectural Design. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.2 Architectural Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.3 Allocation of the Budget, Property and
Architectural Spaces. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.4 Dimensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.5 Contiguity of Architectural Spaces. . . . . . . . . . . . . . . . . . . . 51
3.6 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
4 Why is the Principal Eigenvector Necessary? . . . . . . . . . . . . . . . 63
4.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
4.2 What is a Priority Vector?. . . . . . . . . . . . . . . . . . . . . . . . . . 64
4.3 Some Observations on Positive Reciprocal Matrices
and their Perturbation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
4.4 The General Case: How to Transform a Positive Reciprocal
Matrix to a Near Consistent Matrix . . . . . . . . . . . . . . . . . . . 66
4.5 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
5 Designing a Mousetrap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
5.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
5.2 Effectiveness Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
5.3 Attracting the Mouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
5.4 The Trap Shape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
5.5 The Cost and Benefits of the Trap . . . . . . . . . . . . . . . . . . . . 75
5.6 A Marketing Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
5.7 The Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
5.8 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
6 Designing the Best Catamaran . . . . . . . . . . . . . . . . . . . . . . . . . . 83
6.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
6.2 Basic Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Contents ix
6.3 The Best Combination of Catamaran and Sloop:
A New Alternative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
6.4 The Keel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
6.5 The Rudder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
6.6 The Overall Mhm-Maran Structure. . . . . . . . . . . . . . . . . . . . 89
6.7 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
7 The Selection of a Bridge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
7.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
7.2 Three Alternative Bridge Types. . . . . . . . . . . . . . . . . . . . . . 96
7.2.1 Cable-Stayed Bridges . . . . . . . . . . . . . . . . . . . . . . . 96
7.2.2 Truss Bridges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7.2.3 Tied-Arch Bridges . . . . . . . . . . . . . . . . . . . . . . . . . 99
7.3 The Decision Making Process . . . . . . . . . . . . . . . . . . . . . . . 100
7.3.1 Stakeholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
7.3.2 Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
7.4 Judgements and Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . 102
7.5 Bridge Selection Revisited. . . . . . . . . . . . . . . . . . . . . . . . . . 103
7.6 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
8 Measuring Dependence Between Activities: Input–Output
Application to the Sudan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
8.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
8.2 Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
9 Technological Choice in Less Developed Countries . . . . . . . . . . . 115
9.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
9.2 Applications to Technology Transfer . . . . . . . . . . . . . . . . . . 116
9.3 An Example: Technology Transfer Using the AHP. . . . . . . . . 120
9.3.1 Prioritizing the Assessment Criteria with Sectors . . . . 121
9.3.2 Assessment of Candidate Technologies. . . . . . . . . . . 124
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
10 Market Attractiveness of Developing Countries. . . . . . . . . . . . . . 129
10.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
10.2 Representation of the Problem. . . . . . . . . . . . . . . . . . . . . . . 131
10.3 Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
10.4 Country Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
10.5 Positions of Countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
10.6 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
x Contents
11 An Analytic Hierarchy Process Based Approach to the Design
and Evaluation of a Marketing Driven Business
and Corporate Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
11.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
11.2 The Building Blocks of Strategy . . . . . . . . . . . . . . . . . . . . . 149
11.3 An AHP Formulation of a Marketing Driven Business
and Corporate Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
11.4 Applications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
11.4.1 Key Conclusions from the Applications . . . . . . . . . . 154
11.4.2 Specific Modifications . . . . . . . . . . . . . . . . . . . . . . 155
11.4.3 Areas Requiring Further Development . . . . . . . . . . . 157
11.5 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
12 New Product Pricing Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . 159
12.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
12.2 The Analytic Hierarchy Model. . . . . . . . . . . . . . . . . . . . . . . 161
12.2.1 Time Horizon Scenarios . . . . . . . . . . . . . . . . . . . . . 162
12.2.2 Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
12.2.3 Alternative Strategies . . . . . . . . . . . . . . . . . . . . . . . 165
12.3 Model Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
12.3.1 Reference Case . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
12.4 Sensitivity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
12.5 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
13 Incorporating Expert Judgment in Economic Forecasts:
The Case of the U.S. Economy in 1992 . . . . . . . . . . . . . . . . . . . . 171
13.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
13.2 On the Role of Judgment in Economic Forecasting . . . . . . . . 171
13.3 The Setting: A Sluggish Recovery/Structural Change . . . . . . . 172
13.4 Application of AHP to the Macroeconomic
Forecasting Problem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
13.4.1 Decomposition of the Problem Hierarchically . . . . . . 174
13.4.2 Pairwise Comparison . . . . . . . . . . . . . . . . . . . . . . . 177
13.4.3 Synthesis/Results . . . . . . . . . . . . . . . . . . . . . . . . . . 179
13.5 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
14 A New Macroeconomic Forecasting and Policy
Evaluation Method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
14.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
14.2 A Few Words about Existing Econometric Models. . . . . . . . . 187
14.2.1 First Stage Problem . . . . . . . . . . . . . . . . . . . . . . . . 189
14.2.2 Second Stage Problem. . . . . . . . . . . . . . . . . . . . . . . 189
Contents xi
14.2.3 Quantitative Forecasts. . . . . . . . . . . . . . . . . . . . . . . 191
14.3 Application of the AHP to Macroeconomic Policy. . . . . . . . . 193
14.4 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201
15 A New Approach to the Middle East Conflict:
The Analytic Hierarchy Process . . . . . . . . . . . . . . . . . . . . . . . . . 203
15.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
15.2 Developing a Comprehensive Approach . . . . . . . . . . . . . . . . 205
15.3 The Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
15.4 Implementing the process . . . . . . . . . . . . . . . . . . . . . . . . . . 207
15.5 The Retributive Function. . . . . . . . . . . . . . . . . . . . . . . . . . . 212
15.6 Discussion: The Gain to Loss Ratios of Concessions Made
by Both Sides Need to be Close to One Another . . . . . . . . . . 232
15.7 Equalizing Concession Trade-Offs . . . . . . . . . . . . . . . . . . . . 233
15.8 Problems of Implementation: Some Skeptical Observations. . . 235
15.9 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
16 Legalization of Euthanasia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
16.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
16.2 The Analytic Hierarchy Model. . . . . . . . . . . . . . . . . . . . . . . 251
16.2.1 Key Players. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
16.2.2 Kev Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
16.3 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
16.4 Sensitivity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
16.5 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262
17 How Should Congress Address the Medicare Crisis?. . . . . . . . . . 263
17.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
17.2 The Analytic Hierarchy Model. . . . . . . . . . . . . . . . . . . . . . . 265
17.3 Analysis of Benefits, Risks, Costs and
Opportunities Components. . . . . . . . . . . . . . . . . . . . . . . . . . 267
17.4 Ethical Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
17.5 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
17.6 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
18 Ethics in International Business . . . . . . . . . . . . . . . . . . . . . . . . . 275
18.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
18.2 The Analytic Hierarchy Model. . . . . . . . . . . . . . . . . . . . . . . 276
18.3 Model Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
18.4 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279