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Can anyone explain how to work out the the anwer regarding minimax regret for the SC factory please? I am struggling on this part of the question.
Regret means that you look back and, knowing what’s happened, you wish you had done something else.
So if demand turns out to have been 50m, and you had chosen Opt 1, you would have no regrets. You happened to have chosen the best option. If, however, you had chosen Opt 2, you will make a loss of 8 and kick yourself that you hadn’t chosen Opt 1 where you would have made 4 profit. Therefore, you perceive yourself down on what might have been by 4 + 8 = 12, and that is your measure of regret. If you had chosen Opt 3 you would make a loss of 342 and down by 36 (ie 4 + 32) on your luck.
Similarly, if demand = 60m and you had chosen Opt 2 there would be no regret. The other two are sown 16 – 6 = 10 and 156 +24 = 40
If demand turned out to be 70m, no regrets if Opt 2 had been chosen but regrets of 11 and 1 for the other two.
See Chapter 8 of our notes and lectures.
This explanation just ‘cured’ my headache on minimax regret table. Thank you very much!
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