Minimal Regret Criterion:
This method seeks to minimize the maximum regret that would occur from choosing a particular strategy or alternative.
The regret is the opportunity loss that occurs from taking one decision given that a certain contingency occurs.
For each state of nature:Opportunity loss = Max pay off – Payoff under each alternative
Decision: Set a price of Sh.4.00 since it minimizes the maximum regretMethods of Decision Making Under Risk:In this environment, it is possible to attach probabilities to the various states of nature. The decision criteria would either be:
The two criteria are same as the choice that maximizes the expected monetary value also minimizes the expected opportunity loss (EOL).