Given is a decision payoff table and a Sub Decision Payoff Table. Use Minimax Re

Question

Given is a decision payoff table and a Sub Decision Payoff Table. Use Minimax Regret as an evaluation criterion to evaluate alternatives Future Demand High Alternatives Low Small Facility 8 Moderate 12 20 Medium Facility6 Large Facility6 Alternatives Worst Regrets Small Facility Medium Facility Large Facility a) The worst regrets for alternative Small Facility is b) The worst regrets for alternative Medium Facility is c) The worst regrets for alternative Large Facility is d) The best course of action or decision by using Minimax Regret is to select facility

Explanation / Answer

Step-1 Regret calculation of each cell

Procedure: Calculate the regret of each combination of decision alternative (rows) and state of nature(columns)

Regret = Opportunity loss = Best pay off - Pay off received

For example when future demand is low the best pay off is 8. We need to calculate the regret by subtracting each pay off on that column from 8

For small facility regret = 8-8 =0

For medium facility =8-6= 2

For Large facility = 8-(-6)= 14

similarly, we need to calculate for each cell combination

regret table

Step-2 calculate the worst regret for each decision alternative

Worst regret is the maximum value for each row in the regret table

For small facility worst regret = 9

For medium facility = 8

For large facility = 14

Step 3: Choosing the best alternative

Find the minimum of all the worst regrets

Here the minimum is for the medium facility so the best decision would be the decision for medium facility

Future demand Small Facility 8-8=0 11-9=2 20-11=9 Medium Facility 8-6=2 11-11=0 20-12=8 Large Facility 8-(-6)=14 11-10=1 20-20=0

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