Enhancing TOPSIS to Evaluate Negotiation Offers with Subjectively Defined Reference Points

Abstract This work introduces modifications to the TOPSIS (Technique for Order of Preference by Similarity to Ideal Solution) method by incorporating individual aspiration and reservation levels as reference alternatives for evaluating the decision matrix with crisp data. The proposed procedure, C-TOPSIS (Compensatory-TOPSIS), effectively supports multi-issue negotiations, particularly in scenarios where negotiators reject the FOTE (Full, Open, and Truthful Exchange) approach during prenegotiation and independently define the negotiation space. This often results in parties presenting offers outside the feasible negotiation space defined by counterparts, with certain issues exceeding their aspiration levels or falling below reservation levels. Such offers cannot be evaluated using scoring systems constructed through classical TOPSIS. Three approaches for comparing such offers are introduced: non-compensatory, quasi-compensatory, and fully compensatory. The latter two approaches replace the distance metric from the classical TOPSIS with the concepts of positive and negative deviations. A simulation study demonstrates the superiority of C-TOPSIS over classical TOPSIS by ensuring the stability of the scoring system. A numerical example illustrates the use of C-TOPSIS in prenegotiation preparation and in determining the negotiation scoring system. Another simulation study examines the effects of various compensation, normalization, and distance formulas on C-TOPSIS scores, emphasizing the importance of selecting the right mix of these factors as they may significantly influence offer values in the scoring system. Additionally, a methodology is proposed to analyze the impact of these configurations on the scoring system, providing negotiators with a tool for tailoring C-TOPSIS to their specific negotiation problem.