Decision-making under uncertainty – the integrated approach of the AHP and Bayesian analysis

Abstract

In situations where it is necessary to perform a large number of experiments in order to collect adequate statistical data which require expert analysis and assessment, there is a need to define a model that will include and coordinate statistical data and experts’ opinions. This article points out the new integrated application of the Analytic Hierarchy Process (AHP) and Bayesian analysis, in the sense that the Bayes’ formula can improve the accuracy of input data for the Analytical Hierarchy Process, and vice versa, AHP can provide objectified inputs for the Bayesian formula in situations where the statistical estimates of probability are not possible. In this sense, the AHP can be considered as the Bayesian process that allows decision-makers to objectify their decisions and formalise the decision process through pairwise comparison of elements.

Keywords:

• Analytic Hierarchy Process (AHP)
• decision-making
• probability
• utility
• expected utility (EU)
• Bayesian analysis

JEL classification:

• C11
• C44
• C61

Disclosure statement

No potential conflict of interest was reported by the authors.