Forums › ACCA Forums › ACCA PM Performance Management Forums › Minimax regret

- This topic has 4 replies, 5 voices, and was last updated 13 years ago by rajad2010.

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- November 28, 2010 at 8:39 pm #46339
Guyz i cant seem to understand it, can someone help me please?

November 29, 2010 at 11:38 am #71909AnonymousInactive- Topics: 0
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mee too………..

plz sumone help us in this topic……..November 29, 2010 at 6:35 pm #71910Also need someone to assist on maximin minimax and minimax regret and expected values PLEASE

December 1, 2010 at 1:15 pm #71911Watch the video lecture in open tutiotion. he explains very well on some example

December 10, 2010 at 2:58 pm #71912**Maximax**: Risk Seeker, means, maximise the maximum available profit

e.g. A market trader need to decide on buying grapes for resale and he wants to decide whether he should buy 20kg or 30kg, Say for instance on buying 20kg he has 3 possible outcomes of profit:**buy 20kg 30kg**

**sell10kg**100 150

**sell20kg**. 200 300

**sell30kg.**200 400So, buy 20kg, best? 200

buy 30kg, best? 400

Maximax will choose 400, that is the best possible option.**Maximin**:

Maximin is risk averse, Choose the best out of worstBuy 20kg, what’s the worst result? 100

Buy 30kg, what’s the worst result? 150Now choose the MAXIMUM out of these two MINIMUM outcomes, so decision will be to buy 30kg.

**MINIMAX REGRET:**

The idea is to minimise the opportunity cost, we will choose the option that is the best out of all the options. The option that will have an opportunity cost of 0.**In the example:**

If we sell 10kg what is the best option? 150, this means we will not lose out if we chose this option, so this outcome has a minimax regret value of ZERO. What about the 100 on the top, what happens if we choose that? Our best (maximum) outcome was 150 and if sell 10kg then we are losing 50. That is the oppontunity cost. (so in first row 100 has 50 opportunity cost, 150 has 0.Next, 200 and 300, what’s maximum? 300 so regret 0, and 200? regret 100

Next row, 200 and 400, maxmimum? 400, so regret is 0, and 200? regret is 200.

You can see in the first column the regret will be, 50, 100 and 200 but in the second column it’s 0 throughout. Maximum regret for buying 20kg is 200, maximum regret buying 30kg is 0. So under minimax regret we will order 30kg since there is no regret or its minimised.Thanks.

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