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MINIMAX REGRET APPROACH
This equation is used to solve a two (2) state of nature decision analysis using the minimax regret approach. Now this is tricky but if you follow the steps outlined below you will get the wind of it in no time
STEP 1: First you have to come up with a regret table. Now you might ask "What is a regret table"? That is the amount you lose if you do not go for the best option mate!!!
How do i go about preparing a regret table? TENSHA!!! as my chinese folks would say meaning wait a second ummm i think so...lol!!
STEP 2: Select the highest number down the column of each state, not across but downwards-Horizontally in the example below the highest number for S1 is 200 (200,150, 100) while S2 is 100 (-40, 60, 100) now subtract each state of nature from the highest number of each column as illustrated below
STEP 3: After doing that what you are left with is what is known as a "Regret Table" now from this table you select the maximum followed by the minimum as shown below and voila---you are done, easy right?
EXAMPLE
Given the Following
STEP 1 S1 S2 STEP 2 S1 S2 STEP 3 S1 S2 MAX MINI
Action Action Action
D1 200 -40 D1 200 - 200 100 - (-40) D1 0 140 140
D2 150 60 D2 200 - 150 100 - 60 D2 50 40 50 50
D3 100 100 D3 200 - 100 100 - 100 D3 100 0 100
D2 is the best option when using MiniMax regret approach
REFERENCES
Gichuhi, K J & Ndung'u, N D (2013) Quantitative Methods for Business Management : Decision Analysis and Trees. Nairobi : Finesse.
Investopedia (2015) Expected Value. Retrieved on 23rd March 2015 From : http://www.investopedia.com/terms/e/expected-value.asp
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