Below is an opportunity loss table. What decision should be made based on the mi

Question

Below is an opportunity loss table. What decision should be made based on the minimax regret criterion? State of Nature Alternatives A B C Alternative 1 30 0 10 Alternative 2 5 20 0 Alternative 3 0 20 25 Alternative 1 Alternative 2 Alternative 3 State of Nature C Does not matter Sales for boxes of Girl Scout cookies over a 4-month period were forecasted as follows 100, 120, 115, and 126 The actual results over the 4-month period were as follows 110, 114, 119, 115. What was the MAD of the 4-month forecast? 5 0 108 7

Explanation / Answer

Minimax Regret criterion is based on the assumption that the decision maker might experience regret after he/she has made the decision and the events have occured and would like to select the alternaive which will minimize the maximum possible regret.

Alternative 1

Minimum of maximum regrets is 20 corresponding to Alternative 2

MAD stands for Mean Absolute Deviation = Sum of Absolute differences between actual and forecasted values / Number of observations as follows:

1

From above either the values given are wrong or the choices given are wrong

Alternative/State A B C Maximum Regret

Alternative 1

30 0 10 30 Alternative 2 5 20 0 20 Alternative 3 0 20 25 25

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