An application of interpretive structural modelling to analyse preference structure in multiobjective dynamic environmental-economic systems†

Abstract

This paper applies ISM (interpretive structural modelling) to analyse preference structure in a multiobjective problem of a dynamic environmental-economic model, and terms this method IPSM (interpretive preference structural modelling). Multi-objectives in the model include minimizing social cost of pollution, and maximizing total consumption in a planning interval. IPSM analyses decision-maker's preference relations (mental model) among many Pareto-optimal solutions of the multiobjective systems under the interactive cooperation between the decision-maker and the model-builder, and extracts the decision-maker's preference structure as a hierarchical directed graph, where the vertices of the graph correspond to the Pareto-optimal solutions and the directed edges correspond to the preference relations. An interesting economic interpretation for a preferred solution is discussed in terms of the economic interpretation of the discrete minimum principle.