Maximax, Maximin, Minimax RegretLearning material: Watch this videoLab Scenario:Imagine a local entrepreneur is considering starting a business and has three options: open a coffeeshop, a bookshop, or a fusion coffee-bookshop. The entrepreneur is uncertain about the market'sreaction to these businesses. The possible market conditions are: favorable, neutral, and unfavorable.Data (Payoff Table in USD):Business Option Favorable Market Neutral Market Unfavorable MarketCoffee Shop 150,000 70,000 -30,000Bookshop 100,000 60,000 -20,000Fusion Shop 130,000 80,000 -10,000Positive values represent profits, and negative values represent losses.Assignment Steps:1. Maximax (Optimist's Criterion) Approach:For each business option, identify the maximum possible payoff.First Question What is the business option with the highest of these maximum payoffs? (5points)2. Maximin (Pessimist's Criterion) Approach:For each business option, identify the minimum possible payoff.Second Question What is the business option with the highest of these minimum payoffs(i.e., the least negative or most favorable worst-case scenario)? (5 points)3. Minimax Regret Approach:Firstly, calculate the regret for each decision under each possible market condition. The regret isthe difference between the best payoff for each state of nature (market condition) and theactual payoff for the decision in that state.For each business option, identify the maximum regret.Third Question What is the business option with the smallest of these maximum regrets? (5points)
Maximax, Maximin, Minimax Regret
Learning material: Watch this video
Lab Scenario:
Imagine a local entrepreneur is considering starting a business and has three options: open a coffee
shop, a bookshop, or a fusion coffee-bookshop. The entrepreneur is uncertain about the market's
reaction to these businesses. The possible market conditions are: favorable, neutral, and unfavorable.
Data (Payoff Table in USD):
Business Option Favorable Market Neutral Market Unfavorable Market
Coffee Shop 150,000 70,000 -30,000
Bookshop 100,000 60,000 -20,000
Fusion Shop 130,000 80,000 -10,000
Positive values represent profits, and negative values represent losses.
Assignment Steps:
1. Maximax (Optimist's Criterion) Approach:
For each business option, identify the maximum possible payoff.
First Question What is the business option with the highest of these maximum payoffs? (5
points)
2. Maximin (Pessimist's Criterion) Approach:
For each business option, identify the minimum possible payoff.
Second Question What is the business option with the highest of these minimum payoffs
(i.e., the least negative or most favorable worst-case scenario)? (5 points)
3. Minimax Regret Approach:
Firstly, calculate the regret for each decision under each possible market condition. The regret is
the difference between the best payoff for each state of nature (market condition) and the
actual payoff for the decision in that state.
For each business option, identify the maximum regret.
Third Question What is the business option with the smallest of these maximum regrets? (5
points)
AI-generated content may present inaccurate or offensive content that does not represent bartleby’s views.
Unlock instant AI solutions
Tap the button
to generate a solution
