The following is an opportunity loss table. What decision should be made based on the minimax regret criterion?
A)Alternative 1
B)Alternative 2
C)Alternative 3
D)State of Nature C
E)Does not matter

Question

The following is an opportunity loss table.  What decision should be made based on the minimax regret criterion?
A)Alternative 1 
B)Alternative 2 
C)Alternative 3 
D)State of Nature C 
E)Does not matter

Quizplus · Accepted Answer

The minimax regret criterion involves finding the maximum regret for each alternative and selecting the alternative with the minimum maximum regret. 
For Alternative 1: 
- Maximum regret for State of Nature A: 7 
- Maximum regret for State of Nature B: 3 
- Maximum regret for State of Nature C: 2 
The maximum regret overall is 7. 
For Alternative 2: 
- Maximum regret for State of Nature A: 3 
- Maximum regret for State of Nature B: 0 
- Maximum regret for State of Nature C: 2 
The maximum regret overall is 3. 
For Alternative 3: 
- Maximum regret for State of Nature A: 4 
- Maximum regret for State of Nature B: 2 
- Maximum regret for State of Nature C: 0 
The maximum regret overall is 4. 
Based on the minimax regret criterion, Alternative 2 has the smallest maximum regret and thus should be chosen.

The Following Is an Opportunity Loss Table