Page 180 - Microsoft Word - 00 Prelims.docx
P. 180
Chapter 7
Example 5
As mentioned earlier, Geoffrey’s payoff table illustrates all possible
profits/losses:
Daily supply
40 50 60 70
Probability
salads salads salads salads
40 salads 0.10 $80 $0 $(80) $(160)
Daily
demand 50 salads 0.20 $80 $100 $20 $(60)
60 salads 0.40 $80 $100 $120 $40
70 salads 0.30 $80 $100 $120 $140
His regret table would look as follows:
40 salads 50 salads 60 salads 70 salads
40 salads $0 $80 $160 $240
Daily
demand 50 salads $20 $0 $80 $160
60 salads $40 $20 $0 $80
70 salads $60 $40 $20 $0
Maximum
$60 $80 $160 $240
regret
A manager employing the minimax regret criterion would want to minimise that
maximum regret, and therefore supply 40 salads only.
Illustrations and further practice
Now read Illustration 8 ‘Geoffrey Ramsbottom – the minimax regret rule’.
174
