Multi-attribute decision making based on VIKOR with probabilistic linguistic term sets: An application to the risk evaluation of foreign direct investment

The multiple global environments have triggered changes in the international environment, leading to a sharp decline of foreign direct investment (FDI) compared to pre-pandemic level. To evaluate the investment risk of FDI and make optimal investment decision becomes the most important issue for investors. This paper focuses on the evaluation of investment risk for FDI. First, an index system for risk evaluation of FDI is constructed. Then, we introduce the probabilistic linguistic entropy and cross entropy measures, based on which, a programming model is developed to identify the objective attribute weights. A composite weight derivation method, which takes both the objective attribute weights and the subjective attribute weights into account, is further introduced. In view of attributes’ uncertainty and fuzziness and the conflicting characteristics of some attributes, the VIKOR (the Serbian name: VlseKriterijumska Optimizacija I Kompromisno Resenje, means multi-criteria optimization and compromise solution) method is used to evaluate the risk of FDI under the probabilistic linguistic environment. Furthermore, a case study is presented to illustrate the proposed method. The comparative analysis and some further discussions verify the validity of the proposed method for the FDI risk evaluation.