A sensitivity analysis of composite indicators: Min/max thresholds

Abstract

The aim of composite indicators is to express the overall performance of countries/regions with respect to a complex goal including sustainability, competitiveness, and innovation. Some of the indices play an important role in real governmental and strategic decisions on allocating sources. Sensitivity analyses usually include the changes in weights (of importance), the evaluations with respect to the criteria and the aggregating functions. In contrast, we investigate the effect of setting the minimal and maximal thresholds of the scoring functions used in the assessment. Thus, only the effect of this transformation is investigated, while the input data and criteria weights are not modified or stochastic. It is demonstrated that even such a seemingly innocent modification of the min/max thresholds might lead to remarkable changes in the ranking. Results are presented in detail on the examples of the Environmental Performance Index (EPI) and the Digital Economy and Society Index (DESI). However, the phenomenon is general: further 15 composite indices, applying the min/max threshold, have also been collected. The choice of min/max threshold is functionating as an implicit (re-)weighting of the criteria: criteria with smaller min/max ranges are overweighted. Thus, the steps of weighting and assessment are not independent. This research provides an alternative sensitivity analysis to test the robustness of the rankings.

Keywords

• Composite indicator
• Sensitivity analysis
• Scoring function
• Min/max thresholds
• Rank reversal
• Implicit weighting