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Regret table illustrating the minimax regret decisionĭecision Making without Probabilities Hurwicz Criterion The Hurwicz criterion is a compromise between the maximax and maximin criteria. Finally, the manager attempts to avoid regret by selecting the decision alternative that minimizes the maximum regret. Then the manager identifies the maximum regret for each alternative. Publishing as Prentice Hallĭecision Making without Probabilities Minimax Regret Criterion The manager calculates regrets for all alternatives under each state of nature. Table 12.5 Regret table Copyright © 2013 Pearson Education, Inc. The manager’s regret for choosing the Warehouse alternative is $100,000-$30,000=$70,000 Example: under the Good Economic Conditions state of nature, the best payoff is $100,000. Publishing as Prentice Hallĭecision Making without Probabilities Minimax Regret Criterion Regret is the difference between the payoff from the best decision and all other decision payoffs. Table 12.4 Payoff table illustrating a maximin decision Copyright © 2013 Pearson Education, Inc.
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Payoff table illustrating a maximax decisionĭecision Making without Probabilities Maximin Criterion In the maximin criterion the decision maker selects the decision that will reflect the maximum of the minimum payoffs a pessimistic criterion. Table 12.2 Payoff table for the real estate investmentsĭecision Making without Probabilities Maximax Criterion In the maximax criterion the decision maker selects the decision that will result in the maximum of maximum payoffs an optimistic criterion. Publishing as Prentice Hallĭecision Analysis Decision Making without Probabilities Publishing as Prentice Hallĭecision Analysis Decision Making Without Probabilitiesįigure 12.1 Decision situation with real estate investment alternatives Copyright © 2013 Pearson Education, Inc. Table 12.1 Payoff table Copyright © 2013 Pearson Education, Inc. ■ A payoff table is a means of organizing a decision situation, presenting the payoffs from different decisions given the various states of nature. Probabilities can be assigned to future occurrences Probabilities cannot be assigned to future occurrencesĭecision Analysis Components of Decision Making ■ A state of nature is an actual event that may occur in the future. This chapter relaxes the certainty assumption Two categories of decision situations: ■ Decision Making without Probabilities ■ Decision Making with Probabilities ■ Decision Analysis with Additional Informationĭecision Analysis Overview Previous chapters used an assumption of certainty with regards to problem parameters.