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A neutral cross-efficiency evaluation method based on interval reference points in consideration of bounded rational behavior

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  • Shi, Hai-Liu
  • Chen, Sheng-Qun
  • Chen, Lei
  • Wang, Ying-Ming

Abstract

Cross-efficiency evaluation methods have long been suggested as an alternative for the ranking of decision making units (DMUs) in data envelopment analysis (DEA). So far, little research on cross-efficiency evaluation takes the bounded rationality of DMUs into account. In this paper, we propose a neutral cross-efficiency evaluation method based on interval reference points (IRPs) to consider bounded rational behavior. As such, we take the prospect value, which reflects the bounded rationality of DMUs when facing gain and loss, as secondary goals. This approach allows us to determine the input and output weights for each DMU from its own point of view. Each reference point (RP) of the prospect value is defined as an elastic interval reference point (IRP), which can degenerate into a precise reference point (PRP) or an IRP by adjusting the parameters. As a result, the proposed cross-efficiency evaluation method not only takes the bounded rational behavior of DMUs into account, but is also more neutral and flexible. Numerical examples are provided to illustrate the applications of the cross-efficiency evaluation method based on IRPs in DEA ranking.

Suggested Citation

  • Shi, Hai-Liu & Chen, Sheng-Qun & Chen, Lei & Wang, Ying-Ming, 2021. "A neutral cross-efficiency evaluation method based on interval reference points in consideration of bounded rational behavior," European Journal of Operational Research, Elsevier, vol. 290(3), pages 1098-1110.
    • Handle: RePEc:eee:ejores:v:290:y:2021:i:3:p:1098-1110
    DOI: 10.1016/j.ejor.2020.08.055
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