To utilize the MINIMAX regret method, we first need to find the maximum payoff for each state of nature (Success, Moderate Success, Failure). Next, we'll calculate the regret for each decision alternative, find the maximum regret for each alternative, and then choose the alternative with the minimum of these maximum regrets.
Step 1: Identify Maximum Payoffs for Each State
- Success: The maximum payoff is 250 (from the "Form Joint Venture" alternative).
- Moderate Success: The maximum payoff is 245 (from the "Sell Company" alternative).
- Failure: The maximum payoff is 400 (also from the "Sell Company" alternative).
Step 2: Calculate Regrets
Now we'll calculate regret for each decision alternative by subtracting each alternative's payoff from the maximum payoff for each state.
Regret Table:
| Decision Alternative | Success Regret | Moderate Success Regret | Failure Regret | |---------------------------|----------------|-------------------------|-----------------| | Sell Company | 250 - 100 = 150| 245 - 245 = 0 | 400 - 400 = 0 | | Form Joint Venture | 250 - 250 = 0 | 245 - (-200) = 445 | 400 - (-100) = 500 | | Sell Software on own | 250 - 220 = 30 | 245 - 120 = 125 | 400 - 200 = 200 |
Step 3: Maximum Regret for Each Alternative
Now we find the maximum regret for each alternative:
- Sell Company: Max(150, 0, 0) = 150
- Form Joint Venture: Max(0, 445, 500) = 500
- Sell Software on own: Max(30, 125, 200) = 200
Step 4: Choose Minimum of Maximum Regrets
Finally, we compare the maximum regrets:
- Sell Company: 150
- Form Joint Venture: 500
- Sell Software on own: 200
The alternative with the minimum maximum regret is "Sell Company" with a maximum regret of 150.
Conclusion
Using the MINIMAX regret method, you should choose to Sell the Company.