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Hello John Moffat, I’m your follower and has been referring PM notes. Below is the question from BPP revision kit –
A company wishes to decide on a selling price for a new product. Weekly sales of each product will depend on the price charge and also on customers’ response to the new product. Payoff table is –
Probability Price 1 Price 2 Price 3 Price 4
Price 5.00 5.50 6.00 6.50
Unit Contribution 3.00 3.50 4.00 4.50Weekly demand
Best possible 0.3 10,000 9,000 8,000 7,000
Most likely 0.5 10,000 8,000 7,500 6,000
Worst possible 0.2 6,000 5,000 4,000 3,000If the choice of selling price is based on a minimax regret decision rule, which price should be selected?
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My question is why probability was not considered to calculate the minmax regret decision in the BPP answer? or Did I miss reading any specific point in the question/rule? Looking for your guidance.
In future you must ask in the Ask the Tutor Forum if you want me to answer – this forum is for students to help each other.
The only criteria that uses the probabilities is the expected value criteria. Probabilities are of no relevant when using minimax regret (or maximin or maximax).
I hope you are not using our lecture notes without watching the lectures. That would be pointless because it is in the lectures that I work through the examples and explain and expand on the notes. I do explain the various decision making criteria in the lectures.
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