The MINIMAX regret method involves analyzing the regret associated with each decision alternative based on the possible outcomes. Here’s how to apply this method to your decision alternatives:
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Identify the maximum payoffs for each outcome across all alternatives.
- Success: Maximum payoff is 300 (Sell Company)
- Moderate Success: Maximum payoff is 400 (Sell Software on own)
- Failure: Maximum payoff is 230 (Sell Company)
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Determine the regret for each alternative by subtracting the payoff of each alternative from the maximum payoff for that outcome. This provides the regret table.
Regret Table:
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Success:
- Sell Company: 300 - 300 = 0
- Form Joint Venture: 300 - (-200) = 500
- Sell Software on own: 300 - 100 = 200
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Moderate Success:
- Sell Company: 400 - 90 = 310
- Form Joint Venture: 400 - 140 = 260
- Sell Software on own: 400 - 400 = 0
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Failure:
- Sell Company: 230 - 230 = 0
- Form Joint Venture: 230 - 200 = 30
- Sell Software on own: 230 - 100 = 130
- Create the regret matrix:
| Decision | Success | Moderate Success | Failure | |--------------------------|---------|------------------|--------| | Sell Company | 0 | 310 | 0 | | Form Joint Venture | 500 | 260 | 30 | | Sell Software on own | 200 | 0 | 130 |
- Determine the maximum regret for each alternative:
- Sell Company: Max regret = max(0, 310, 0) = 310
- Form Joint Venture: Max regret = max(500, 260, 30) = 500
- Sell Software on own: Max regret = max(200, 0, 130) = 200
- Choose the alternative with the smallest maximum regret:
- Sell Company: 310
- Form Joint Venture: 500
- Sell Software on own: 200
The lowest maximum regret is for Sell Software on own (200).
Thus, based on the MINIMAX regret method, the decision alternative you should choose is to Sell Software on own.