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 we make any decision and then...

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 we make any decision and then some outcome occurs, we look at that outcome’s column in the payoff table to see how much more we could have made if we had chosen the best payoff in that column. For example, if the decision we make and the outcome we observe lead to a $50 payoff, and if the highest payoff in this outcome’s column is $80, then our regret is $30. We don’t want to look back and see how much more we could have made, if only we had made a different decision. Therefore, we calculate the regret for each cell in the payoff table (as the maximum payoff in that column minus the payoff in that cell), 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 simple three-decision, three-outcome example. 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.