Methodological challenges in building composite indexes: Linking theory to practice

Composite indicators are emerging in several fields and disciplines as appealing method to synthesize a multitude of information, in a compact, single, and unique way. The process of aggregating heterogeneous information is itself very challenging and exposed to numerous threats. The chapter deepens on the methodological challenges that scientists, analysts, and final users must be aware of for a correct interpretation of the composite indexes. By mean of a worked example on the construction of composite indicators for food security, the chapter concludes that while different normalization and weighting approaches do not alter composite indicators, data imputation and aggregation methods are the most crucial steps: different methods convey very different results. For instance, the adoption of different aggregation procedures may largely alter the rankings based on composite indicators. In sum, the analysis shows that the index construction decisions matter and comment on policy and practical implications for the construction of composite indicators.