Publications / 2012 Proceedings of the 29th ISARC, Eindhoven, Netherlands

Bid Decision Making with Prospect Game Theory

Min-Yuan Cheng, Chia-Chi Hsiang
Abstract:

Purpose This study proposes a new bidding decision model (Prospect Game Theory Model for Bidding Decision, BDPGTM) for construction companies to set optimal bidding prices. Method This study has successfully integrated fuzzy preference relations (FPR) with fuzzy rating (FR), cumulative prospect theory (CPT) and game theory (GT). FPR was employed to forecast implementation probability for bidding strategies, and to simplify and overcome traditional reliance on evaluator experience in prediction. FR was introduced to forecast value functions and probability weight functions of competitor’s primary decision maker (PDM), and to solve the problems of inability to elicit competitor’s preference functions. CPT was included to calculate the prospect value of all companies’ PDM for all bidding strategy combinations. Lastly, GT was used to analyze PDM-determined bidding strategy. The optimal bidding prices derived from the proposed approach will be able to secure both the contract award and be as profitable as possible. Results & Discussion This study has verified the proposed BD-PGTM by using actual bidding projects from construction companies in Vietnam. It has also helped PDM to get exact optimal bidding prices.

Keywords: bidding decision making, cumulative prospect theory, game theory