Besides the maximin, maximax, and EMV criteria, there are other possible criteria for making decisions. One possibility involves regret. The idea behind regret is that if you make any decision and then some outcome occurs, you look at that outcome’s column in the payoff table to see how much more you could have made if you had chosen the best payoff in that column. For example, if the decision you make and the outcome you observe lead to a $50 payoff, and if the highest payoff in this outcome’s column is $80, then your regret is $30. You regret looking back and seeing how much more you could have made, if only you had made a different decision. Therefore, you calculate the regret for each cell in the payoff table, calculate the maximum regret in each row, and choose the row with the smallest maximum regret. This is called the minimax regret criterion.
a. Apply this criterion to the example in Simple Decision Problem.xlsx. Which decision do you choose?
b. Repeat part a for the SciTools example.
c. In general, discuss potential strengths and weaknesses of this decision criterion.