Question 99 in Winston Wayne L Albright S Christian 20110505

Question 9.9 in Winston, Wayne L.; Albright, S. Christian (2011-05-05). Practical Management Science (Page 491).

Besides the maximin, maximax, and EMV criteria,

there are other possible criteria for making decisions.

One possibility involves regret. The idea behind
regret is that if you make any decision and then some
outcome occurs, you look at that outcome’s column
in the payoff table to see how much more you could
have made if you had chosen the best payoff in that
column. For example, if the decision you make and
the outcome you observe lead to a $50 payoff, and if
the highest payoff in this outcome’s column is $80,
then your regret is $30. You regret looking back and
seeing how much more you could have made, if only
you had made a different decision. Therefore, you
calculate the regret for each cell in the payoff table
(as the maximum payoff in that column minus the
payoff in that cell), calculate the maximum regret in
each row, and choose the row with the smallest
maximum regret. This is called the minimax regret
criterion.

a. Apply this criterion to the example in Simple
Decision Problem.xlsx. Which decision do you
choose?
b. Repeat part a for the SciTools example.
c. In general, discuss potential strengths and
weaknesses of this decision criterion.

Solution

a) Which decision do you
choose? D1

b) we will chose $125000 as is has minimum EMV