The following payoff matrix shows the various profit outcomes for 3 projects,A,B,and C,under 2 possible states of nature: the product price is $10 or the product price is $20. Using the minimax regret rule the decision maker would choose
A)A.
B)B.
C)C.
D)impossible to tell from the information

Question

The following payoff matrix shows the various profit outcomes for 3 projects,A,B,and C,under 2 possible states of nature: the product price is $10 or the product price is $20.  Using the minimax regret rule the decision maker would choose
A)A. 
B)B. 
C)C. 
D)impossible to tell from the information

Quizplus · Accepted Answer

According to the minimax regret rule, we calculate the maximum regret for each decision (project) and choose the one with the minimum maximum regret. The regret table can be calculated by subtracting each payoff from the maximum payoff in each row and taking the absolute value. Then we can find the maximum regret for each decision:

Max Regret for Project A = max{ 0, 10 } - 5 = 5
Max Regret for Project B = max{ 0, 20, 10 } - 8 = 12
Max Regret for Project C = max{ 0, 15 } - 9 = 6

Since A has the minimum maximum regret of 5, the decision maker would choose Project A.

The Following Payoff Matrix Shows the Various Profit Outcomes for 3