Exhibit 14.3
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 70% and an expanding economy at 30%.
-Refer to Exhibit 14.3. What formula should go in cell F5 and copied to F6:F8 of the spreadsheet if the expected regret decision rule is to be used?
A) =B$5-MAX(B$5:B$8)
B) =MAX(B$5:B$8)-MAX(B5)
C) =MAX(B$5:B$8)-MIN(B$5:B$8)
D) =MAX(B$5:B$8)-B5

Question

Exhibit 14.3
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 70% and an expanding economy at 30%. 
-Refer to Exhibit 14.3. What formula should go in cell F5 and copied to F6:F8 of the spreadsheet if the expected regret decision rule is to be used?
A) =B$5-MAX(B$5:B$8) 
B) =MAX(B$5:B$8)-MAX(B5) 
C) =MAX(B$5:B$8)-MIN(B$5:B$8) 
D) =MAX(B$5:B$8)-B5

Quizplus · Accepted Answer

The expected regret decision rule involves calculating the regret for each option, which is done by subtracting the value of each option (B5, for example) from the maximum value in the range of options (MAX(B$5:B$8)). This gives the regret for not choosing the best option in each scenario.

Exhibit 14.3 The Following Questions Are Based on the Information Below