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Study on Industry Risk Assessment of Decision-making Model MAO Yuzhong, YANG Guangming Zhejiang University of Science and Technology, School of Economics and Management, Hangzhou, P.R.China, 310023 [email protected] Abstract: Industry faces a lot of uncertainty in decision-making factors, developing a number of risks. How to defuse the risks is macro decision-making of important issues. In this paper, we establish a model, and explore mechanisms for industry risk assessment, comparing the risk of differences between industries, with a view to the application of decision-making in the industry. A new variable expected opportunity losses is proposed, it is perfect complement scientific decision-making and of great significance in today's changing economic environment. This paper wishes to engage in venture capital research scholars, government management and venture capitalists help, and to some extent, the promotion of China's venture capital industry. Keywords: Industry Risk, Decision, Model 1. Introduction Risk is a probability of adverse effects and severity of the measure, it is a concept. Many of these risks find it difficult to comprehensive, and to quantify the risk makes an outsider confused, the same has challenged the professionals. Vigorous development in the industrialization of today's world, commercialization risks is becoming a first-class implementation of the industrialization of important issues. Such as high-tech industry, eco-agriculture industries, such issues are particularly prominent. According to the European implementation of the project survey of 97, which are derived from the risk of failure, of which 80% of the market risk, 20% for the technical risks. From 1959 to 1971, the British government's encouragement, there have been more than 90 factories moved from London to Thetford Hill and Harvard cities of our manufacturing industry. Though the East Anglia District has increased the number of workers in some industries, and has achieved a certain degree of direct benefit. But because these are not the first into the enterprise itself, they are consumed in the production of raw materials and semi-finished products, intermediate products and 90% had to rely on long-term supply of London, the products are mostly for areas inside and outside the direct consumption. These enterprises to create the multiplier effect of most of the leak to London, and thus they can not drive regional economic development and has played little role. In 1960’s,the major export countries of the Netherlands found that a large number of natural gas, the results of a series of changes have taken place in the domestic economy, the blind development of chemical industry, the export surge in the international balance of payments surplus, the economy appeared prosperity. However, the booming natural gas industry in the Netherlands was a serious blow to the agricultural and other industrial sectors, weaken the international competitiveness of export industries, to the 20th century, 70 years, the Netherlands suffered from rising inflation, decline in manufactured exports, lower revenue growth, the unemployment rate increase in distress, the resource industry in the "boom" period of inflated prices at the expense of other industries at the expense of the phenomenon known as "Dutch disease." 16th century Spanish gold and silver from the Americas was hindered its industrialization process, which is also a “Dutch disease”. The 20th century, the early 70s to 80, the global oil prices soaring, in Saudi Arabia, Nigeria and Mexico has also exerted a similar situation.The blind development of some of China's western region not suited to the local industry, resulting in substantial losses, the risk of a huge industry. Beihai, Guangxi, such as the blind development of real estate, "uncompleted flats" nationally renowned for "18 bio-engineering" in Yunnan Province, it is the investment of hundreds of millions, without the formation of industrial efficiency. In 2009 China Financial Forum, the China Banking Regulatory Commission Chairman Liu said that the banking financial institutions should play a good practice and ; 325 innovation's role, in the low-carbon economic development and industrial structure adjustment play an active role to strengthen credit management, and vigorously to prevent industrial the structural adjustment process in the industry credit risk. High-tech is becoming a socio-economic development in the 21st century, the main driving force. Faced with this trend, governments have to develop appropriate measures with a view to the future world economy complete.China also have an important task of nation with science and education as a government. To implement the strategy must address the risks of high-tech industries. Production of the above Industrial risks is with the local government decision-making related to non-industrial risk assessment. Industry Risk The first is risk assessment, risk assessment model is an advanced concepts and techniques and methods in the embodiment of the macro level risk assessment on the industry, all levels of government should be the focus of the work to find suitable conditions for the local characteristics and resources development. 2. Modeling There is the risk of industry decision-making problems, Under normal circumstances policy-makers are often faced with multiple possible states, called the event, denoted by b1 b2 b3. Decision-makers can take the decision-making programs; it has more than one, denoted by d1, d2, d3. The decision-making programs for each risk and calculate an income of each state, denoted by wij Thus: m rows n columns matrix H = (wij), known as the risk-return decision-making matrix. , , , w11 H = w21 w31 w12 w22 w32 w13 w23 w33 Because the randomness of the occurrence of various states, decision-makers in decision-making prior to the need for every state bj probability of occurrence to make a reasonable estimate, denoted by p (bj) ∑p w j ij = pj. As a result, the corresponding expected return on the decision makers is j . In this way, the risk of decision-making problems can be attributed to the decision-making program for determining, it must satisfy the fellow: ∑p w j ki i = max ∑ p j wi j i This is commonly used in risk decision-making guidelines for the maximum expected return. Similarly, if easy access to the decision-making program that corresponds to dij and the like bj-state cost of wij, From the perspective of risk considerations, in order to reduce the risk of loss, then the common decision-making criterion is the minimum expected cost criteria to determine the decision-making program dk, so that: ∑p w j i ki = min ∑ p j wi j i On decision-making principles, there are often ignored by many policy makers also need to have a concept is to minimize the chance of loss. The so-called opportunity loss means: When the state bij occurs, the result of the selection of decision-making di, may not receive maximum benefit. The decision-making di obtained gains and likely to get maximum benefit shall be the difference it is the loss of the opportunity, denoted as follows: , Li j = max wkj − wij k Similarly, we can also adopt the principle of minimum expected loss of the opportunity to make decisions, select the decision-making, so that: 326 ∑p L j i ki = min ∑ p j Li j i In general, we have the following conclusions: Minimum expected loss of the opportunity principle and the principle of maximum expected profit is equivalent, at the same time there have: ∑p w +∑p j ij j j j Lij = ∑ p j max wij k j Notwithstanding the above conclusions, calculate the minimum expected loss of the opportunity there is another meaning. Envisaged through the market survey, for which the event actually took place can get complete information, thus the availability of corresponding maximum benefit max wkj k ( j ) . Therefore, ∑ p j max wkj k , under the conditions of access to complete information, expected maximum benefit is it is with no access to this information than the maximum expected return, exactly the difference is an opportunity for the minimum expected loss: ∑p j j (max w )− max ∑ p w = min ∑ p L k kj j ij j i ij i Therefore, this value can be defined as the expected value of perfect information of the EV. For the reality of this problem, attention should be given the opportunity loss of hope, if this value is a small price to obtain complete information, it is considered in decision-making need to focus on the issue. 3. Model Application The usual industry measure indicators can be simplified by GDP, because the data is easier to obtain the results easily acceptable. Cost considerations as a decision-making, simplify the number of investment ×the volume of unit investment = GDP. If a certain area in the number of 100, the unit of volume of investment of 10; invested 200, unit investment volume of 9; invested more than 300, the unit of volume of investment of 8.5. If the investment opportunity losses of 0.5 failures, we seek the largest GDP, the risk minimal loss. For the typical industry risks, simplifying the decision-makers facing the state are three kinds of (the primary industry, secondary and tertiary industries). Denoted by b1, b2, b3, respectively, to be industrial investment amounted to 100,150,200 situations. Policy-makers may take the decision-making also has three kinds, denoted in the d1, d2, d3, respectively, correspond to the number of 100,200,300 investment in the case. After calculation, easy to get payoff matrix: 200 175 150 H = 100 300 600 − 150 150 450 If the decision-makers based on past experience and current information, be able to b1, b2, b3, probability of occurrence to make a reasonable estimate, for example: p1 = p(b1 ) = 0.5 , p 2 = p (b2 ) = 0.3 , p3 = p (b3 ) = 0.2 Then, corresponding to the decision-making d1, d2, d3 expected benefits are as follows: G (a1 ) = ∑ p j w1 j = 182.5 j 327 G (a 2 ) = ∑ p j w2 j = 210 j G (a3 ) = ∑ p j w3 j = 60 j In accordance with the principle of maximum expected profit, the decision should be taken for the d2, the industry GDP is 210. Risks of the industry, according to the principle of minimum expected loss of the opportunity available, you should choose the decision-making d2, GDP is 210, the corresponding expected opportunity losses as follows: ∑p w j 2j = 100 j …… (2.1) For now this problem, we look forward to the opportunity has been lost (2.1),so EV = 100 If this value is a small price to obtain complete information, it is worthy. The number of non-discrimination, such as investment, is uniformly distributed situation.We assume that investment in the previous three discrete numbers of possible states. Another possible scenario is that policymakers have learned from past experience, the number of estimated investment of 100 to 200 between, the investments may set the number of subordinate [100,200] on the uniform distribution. Recorded the number of q for investment, s for investment, E, as the proceeds as decision-makers. When q> s, the industry, there is no risk, but there is q<s cases, industries at risk, let c (s) as the unit volume of investment, decision-makers the benefits are: , E = 12 s − c(s )s − 0.5(q − s ) = 6q + (6 − c(s ))s 10, s = 100 c(s ) = 9, s = 200 8.5, s = 300 When q <s, its benefits as follows: E = 12q + 6(s − q ) − c (s )s = 6q + (6 − c(s ))s 6q + (6 − c (s ))s, q≤s G= q>s (12.5 − c (s ))s − 0.5q, When s = 100, the decision-makers expected return as follows: Gs = ∫ 200 100 ((12.5 − 10 ) • 100 − 0.5 x ) p (x )dx = 175 p( x ) = 1 100 , (x ∈ [100 , 200 ]) , Presents the Where p (x) is the probability density function of s, characteristics of uniform distribution, probability function is shown in Figure 1, decision-making for the d2, the second industry is with less risk. 328 Figure 1: a uniform distribution of probability function 3. Conclusion Industry risk assessment the amount of real difficulty lies in GDP forecasts, requires a lot of surveys and statistics. This model is simple, but it is already quantitative analysis, a comprehensive analysis is essential. In contrast, quantitative decision-making is of practical significance. Application of the principle of maximum expected profit, or the principle of minimum expected cost, we need policy-makers on the probability of random events to make the valuation. Sometimes it is very difficult. If decision-makers can not be measured the probability of the incident, then he can not resort to the principle of maximum expected profit decision-making. At this time, you can take to maximize the principle of the minimum income (or a conservative principle) selection decisions. References [1]. Yang Qia, An Introduction to Industrial Economics, China Renmin University Press, 2008. (in Chinese) [2]. WjySIIer, U. A. (UI.J, J, P,uzation MethodsJor Large-Dcale Dysrems, Mc(Jraw-Hill, New York. [3]. Kuhn, H. W., and A. W. 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