A Multicriteria Decision Aid Methodology for Sorting Decision Problems: The Case of Financial Distress

Authors:
Constantin Zopounidis;Michael Doumpos
Affiliations:
Technical University of Crete, Department of Production Engineering and Management, Financial Engineering Laboratory, University Campus, 73100 Chania, Greece;Technical University of Crete, Department of Production Engineering and Management, Financial Engineering Laboratory, University Campus, 73100 Chania, Greece
Venue:
Computational Economics
Year:
1999

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Abstract

Sorting problems constitute a major part ofreal world decisions, where a set of alternativeactions (solutions) must be classified into two ormore predefined classes. Multicriteria decision aid(MCDA) provides several methodologies, which are welladapted in sorting problems. A well known approach inMCDA is based on preference disaggregation which hasalready been used in ranking problems, but it is alsoapplicable in sorting problems. The UTADIS(UTilités Additives DIScriminantes) method, avariant of the UTA method, based on the preferencedisaggregation approach estimates a set of additiveutility functions and utility profiles using linearprogramming techniques in order to minimize themisclassification error between the predefined classesin sorting problems. This paper presents theapplication of the UTADIS method in two real worldclassification problems concerning the field offinancial distress. The applications are derived bythe studies of Slowinski and Zopounidis (1995), andDimitras et al. (1999). The obtained results depictthe superiority of the UTADIS method over discriminantanalysis, and they are also comparable with theresults derived by other multicriteria methods.