Minimal regret criterion-laplace criterion of rationality, Managerial Accounting

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

2444_Untitled.jpg


Decision:
Set a price of Sh.4.00 since it minimizes the maximum regret

Methods 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 expected monetary value
  • The expected opportunity loss

 

The two criteria are same as the choice that maximizes the expected monetary value also minimizes the expected opportunity loss (EOL).

 

Posted Date: 12/4/2012 7:13:42 AM | Location : United States







Related Discussions:- Minimal regret criterion-laplace criterion of rationality, Assignment Help, Ask Question on Minimal regret criterion-laplace criterion of rationality, Get Answer, Expert's Help, Minimal regret criterion-laplace criterion of rationality Discussions

Write discussion on Minimal regret criterion-laplace criterion of rationality
Your posts are moderated
Related Questions
Full Service Recourse Factoring : In this kind of factoring the client has to bear the risk of default made through the debtors. There the factor had advanced funds against book de

Ageing Schedule: AS is classifies outstanding accounts receivable at a specified point of time into various age brackets. A clarifying ageing schedule is specified below.

identify and explain the many classification of costs for planning, control.performance evaluation and decision making.

The working capital needs of a firm are influenced by many factors. The important ones are as follows: Nature of business: The working capital necessity of a firm is closely l

Your financial advisor has recommended that you invest into your Roth Individual Retirement Account (Roth IRA) the sum of $5,000. If you put in $5,000 today, what will this investm

Direct materials,4yard at$3.50per yard...$14.00 Direct labor,1.5direct labor hours at $12.00 per direct labor hour....$18 Variableoverhead,1.5 direct labour hours at $2.00 per dire

How much was Topaz’s operating income (income before taxes) last year?

You recently began a job as an accounting intern at Indoor Racing Ltd. Your first task was to help prepare the cash budget for February and March. Unfortunately, the computer with

Explain Kaizen costing It is a Japanese method used to manage cost during a product s planning and design stages and has been used by some Japanese firms for over twenty years

Illustration of Marginal profit To illustrate the computations, suppose that the marginal profit or XE in our model is changed from 3 to 3 + δ1, where δ represents either posit