Analysis of preferences

Analysis of preferences is a research approach consisting in classifying objects in a certain scale, which is reflected in the hierarchy of their importance. The overall objective of this approach is the multi-criteria evaluation of business, focused both on analytical and comparative studies and the selection of alternative solutions.

The basic methods of analysis of preferences in strategic management include ranking and scoring.

The basis of the analysis of preferences is the five principles:

1. Principle of hierarchy

The basis of the effectiveness of preferential methods is the possibility of a meaningful and sufficiently strict measurement of objects under study. The rating expressed in points or ranks, shows the priority of objects in the context of the formulated goals or purpose and taking into account the impact of environmental factors.

2. Principle of relativity of evaluation criteria

We are dealing here with a hierarchy of evaluation criteria analogous to the hierarchy of things, factors, systems. This is done by allowing for the possibility of existence of differences in the significance of the applicable criteria. Prioritizing the evaluation criteria is based on the preferential aspects, which in this case, the same role as the ranking of objects or things.

3. Principle of levels of acceptability

It is assumed that for each characteristic value, there are certain levels of "acceptability" are called "limits" that form a selective filter for positively or negatively qualify the object.

4. Principle of adequacy of score conversions

This principle that informs us of the need to preserve the correspondence between the characteristic values ​​of the object and the point or rating in evaluation. Adequacy is intended to express the conversion of values corresponding to particular characteristic of the facts to specified point range. It is to avoid arbitrariness in translating values into points. This involves the adoption of a particular method of mapping the characteristic value to point value.

5. Principle of objectivity

In order to avoid the randomness and arbitrariness of ranking and scoring verification procedures should be used. In particular, this applies to objectify the relevance of assessment criteria, because assigning a particular rank or score points should be attested by a competent expert assessment, taking into account the statistical test.

Examples of Analysis of preferences

• A/B Testing: A/B testing is a type of analysis of preferences that involves testing two versions of a product, design, or website against each other in order to determine which one performs better. This is often used to optimize a website or product by comparing different versions of a page or feature and seeing which one performs better in terms of user engagement, conversions, or other metrics.
• Conjoint Analysis: Conjoint analysis is a type of market research technique used to measure consumer preferences. It involves presenting respondents with product descriptions that contain different attributes and asking them to rate the products on a scale. This type of analysis is used to understand the relative importance of different product attributes and to determine which combination of attributes is most preferable to consumers.
• Market Segmentation: Market segmentation is a type of analysis of preferences that involves dividing a market into different segments based on factors such as customer needs, demographics, or psychographics. This approach is used to identify distinct groups of customers who have similar needs and preferences, allowing companies to tailor their products and services to meet the needs of each segment.

Advantages of Analysis of preferences

Analysis of preferences is a useful technique for making business decisions, as it can provide a comprehensive review of a particular situation by considering a number of different factors and criteria. The following are some of the benefits of using this approach:

• It can provide a more objective view on a given problem, as it allows for the comparison of multiple criteria and assesses them in a quantitative manner.
• It can help to identify the most important factors that affect decision making and allows for the prioritization of those criteria.
• It can help to identify potential trade-offs between different criteria and can help to identify optimal solutions.
• It can be used to evaluate the performance of different solutions and can help to identify the best option.
• It can be used to identify the most cost-effective solution and can be used to identify the most efficient way to achieve desired objectives.
• It can be used to create a decision-making model that can be used to select the most appropriate solution for a given problem.

Limitations of Analysis of preferences

Analysis of preferences has certain limitations, which include:

• Subjectivity: since preferences are highly subjective, it is difficult to accurately assess the preferences of different people.
• Reliability: the reliability of the results of analysis of preferences can be affected by the quality of data and the accuracy of the analysis methods used.
• Time and Cost: the process of analysis of preferences can be time-consuming and expensive due to the need to collect and analyze data.
• Lack of Knowledge: the analysis of preferences is based on the knowledge of the decision makers and the availability of data, which may be incomplete or unavailable.
• Complexity: due to the complexity of the problem, the analysis of preferences can be difficult to understand and interpret.

Other approaches related to Analysis of preferences

Other approaches related to Analysis of preferences include:

• Multi-criteria decision analysis (MCDA) - a systematic approach for making decisions in complex and uncertain environments, which combines quantitative and qualitative methods to find the best solution.
• Cost-benefit analysis (CBA) - a structured approach to calculating the total expected cost of a decision, compared to its expected benefits, in order to determine whether it is worth pursuing.
• Conjoint Analysis - a type of market research that measures preferences for different combinations of features of a product or service.
• Data Envelopment Analysis (DEA) - a method for quantifying relative efficiency of decision-making units and for making decisions based on relative efficiency.
• Monte Carlo simulation - a method of estimating the probability of certain outcomes by running multiple scenarios with different variable values.

In summary, other approaches related to Analysis of preferences include Multi-criteria decision analysis, Cost-benefit analysis, Conjoint Analysis, Data Envelopment Analysis, and Monte Carlo simulation. All of these approaches are used to identify the best solution in complex and uncertain environments.

Analysis of preferences — recommended articles

Decision tree — Rating process — Rational decision making — Selection process in conditions of certainty and uncertainty — Decision process models — Impact of information on decision-making — Parametric analysis — Decision making — Descriptive model — UPREIT

References

• Bazerman, M., & Moore, D. A. (2012). Judgment in managerial decision making.
• Dasgupta, P., Sen, A., & Marglin, S. (1972). Guidelines for project evaluation. In UNIDO. Project Formulation and Evaluation (Vol. 2). United Nations. UNIDO.
• Keeney, R. L., & Raiffa, H. (1993). Decisions with multiple objectives: preferences and value trade-offs. Cambridge university press.
• Van de Walle, B. (2003). A relational analysis of decision makers' preferences. International Journal of Intelligent Systems, 18(7), 775-791.