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CMA Intermediate · Management Accounting · Decision Theory

A firm has the following payoff table (Rs lakh). A1: S1 = 60, S2 = 20; A2: S1 = 40, S2 = 50; A3: S1 = 30, S2 = 35. Under the minimax regret criterion, which act is chosen and what is its maximum regret?

A2 is chosen with a maximum regret of Rs 20 lakh. Regret is the best payoff in a state minus the act's payoff. The maximum regrets are 30 for A1, 20 for A2 and 30 for A3, so A2 has the smallest worst-case regret.

  1. AA1 with maximum regret 30
  2. BA2 with maximum regret 20Correct
  3. CA3 with maximum regret 25
  4. DA2 with maximum regret 30

Explanation

Best payoff in S1 is 60 and in S2 is 50. Regrets: A1 = 0 and 30; A2 = 20 and 0; A3 = 30 and 15. Maximum regrets are 30, 20 and 30. The minimum of these is 20, for A2.

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