Julie is planning to open a restaurant and is considering two possible locations.She has estimated the payoff for each location for each of three different possible levels of restaurant popularity (state of nature)as shown below. Using the minimax regret criterion,she should choose location 1.

Question

Julie is planning to open a restaurant and is considering two possible locations.She has estimated the payoff for each location for each of three different possible levels of restaurant popularity (state of nature)as shown below.  Using the minimax regret criterion,she should choose location 1.

Quizplus · Accepted Answer

The minimax regret criterion involves calculating the maximum possible regret for each decision and choosing the option with the minimum maximum regret. In this case, we can calculate the regrets for each decision based on the payoffs for each state of nature. After doing so, we see that the maximum regret for location 1 is less than the maximum regret for location 2 at all levels of popularity. Therefore, Julie should choose location 1 according to the minimax regret criterion.

Julie Is Planning to Open a Restaurant and Is Considering