An Efficient Prospect Selection Approach in Cumulative Prospect Theory

To solve the problems that the optimal prospect is usually selected questionably in conventional methods resulting from uncertainties existing in subjective preference judgments, an approach to select efficient prospects is presented by means of a small quantity of relatively accurate information. The presented approach uses the trade off and the certainty equivalent methods to elicit individual preferences for gains, losses and probability in the form of standard sequences of outcomes and probability weightings, in terms of which, a model named EPS is established and applied to select efficient prospects by data envelopment analysis with assurance region. The EPS holds an excellent ability of fault tolerance and is able to select efficient prospects easily and correctly. Simulation example proves the EPS is scientific, reasonable, and well applicable.