Accounting Questions and Answers
November 22, 2011
What is Minimax regret rule?
It is a strategy which seeks to minimize the maximum possible regret (e.g. loss made or profits forgone) incurred as a result of having made a decision. For example lets assume you have two options: a) going to work on a cloudy day, b) goi...ng to work on a normal day. If you choose decision "a" there is a possibility it might rain.but you will make $50 at work and will have to get your clothes dry cleaned at a cost of $5 if it rains. if you choose option "b" you will again make $50 at work but there are chances the temperature might be too high and you will get a skin burn and will have to buy an ointment costing $ 20. the most you can lose as a result of decision A is $5, the most you can lose as a result of decision B is $20. You will choose decision B to minimize the maximum loss