Incorporation of prospect theory into double-frontier cross-efficiency: a case study of Iranian airline

CEM is a widely recognised approach that utilises DEA to assess the efficiency of DMUs, providing policymakers with a valuable tool. However, there are certain limitations associated with conventional CEM. First, it fails to consider DMs’ subjective preferences, thereby disregarding the significance of cross-evaluations. Secondly, traditional CEM overlooks the significance of a pessimistic standpoint in making decisions. To overcome these drawbacks, the current study aims to incorporate the prospect theory into the double-frontier CEM. This theory allows for the incorporation of DMs’ preferences regarding gains and losses in cross-evaluation aggregation. The paper utilises a novel cross-evaluation aggregation approach (referred to as APC) to address DMs’ subjectivity. As a real case study, the performance of 17 Iranian airlines is examined using the novel Double-Frontier CEM based on APC, referred to as DAPC. This study evaluates Iranian airlines according to three inputs and four outputs. The results of the study revealed that DMs’ preferences had a significant impact on both viewpoints. Interestingly, the ranking outcomes for more than half of the airlines differed significantly when considering the two viewpoints.