3state MiniMax Regret Approach by Kingsley&Joy

MINIMAX REGRET APPROACH

This equation is used to solve a  three (3) state of nature decision analysis using the minimax regret approach. Now this is follows exactly th same format as the two (2) states of nature just with one extra column a third state. 

STEP 1:  First you have to come up with a regret table.  Ngoja!!! as my Kiswahili speaking folks would say meaning wait, keep calm or stay...lol!! in this case i want you to keep calm you just identify the largest number in each column...remember "Each Column" not row

STEP 2:  S1 has the numbers 200,150, 100 so 200 is the largest, S2 has -40, 60, 100, 100 is the largest, cool now S3 has 60, 110, 120 so therefore we select 120  now subtract each state of nature from the highest number of each column which you selected, just take a look at it below #winks!!

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        s3                         STEP 2                         S1                      S2                     S3                      

Action                                                                  Action                                                                             

D1              200         -40         60                          D1                            200 - 200         100 - (-40)           120 - 60      

D2              150         60         110                          D2                             200 - 150         100 - 60             120 - 110          

D3              100        100        120                          D3                            200 - 100         100 - 100             120 - 120

 STEP 3           S1           S2            S3             MAX       MINI      

Action

D1                 0              140           60                140

D2                50             40            10                 50             50

D3               100           0               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