Minimax regret
Minimax regret chooses the alternative with the smallest maximum opportunity loss relative to the best option in each state of nature. First construct regret within each state using the best payoff achievable in that state; then find each alternative’s largest regret and minimise it. Probabilities are not needed by the rule. Regret is a comparison with foregone performance, not a direct accounting cost or a bankruptcy prediction.
Worked example
For A payoffs 100 and 20 and B payoffs 70 and 60, state-best payoffs are 100 and 60. Regrets are A 0/40 and B 30/0. Maximum regrets 40 and 30 lead to B.
Common mistake
Find each state’s best payoff before calculating regret; comparing across unrelated states gives the wrong table.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | PM | Direct | September 2026–June 2027 |
