Question

A local real estate investor in Orlando is considering five alternative investments: a day spa, a theater, a restaurant, a motel, or a gift shop. Profits from the day spa, theater, gift shop or restaurant will be affected by the cost of gasoline; profits from the restaurant will be relatively stable under any condition.
The following payoff table shows the profit or loss that could result from each investment.
Determine the best investment using the minimax regret decision criterion.

Gasoline Prices

Investment Decisions	Increase .30	Stable .60	Decrease .10
Day Spa	$-3,000	$14,000	$19,000
Gift Shop	$-8,000	$15,000	$20,000
Motel	$7,000	$8,000	$10,000
Restaurant	$6,000	$6,000	$6,000
Theater	$-6,000	$22,000	$18,000

Group of answer choices

Restaurant

Day Spa

Gift Shop

Theater

Motel

Next

Answer 1

To use minimax regret decision criterion we first require the oppurtunistic loss table and it is calculated as follows:-

1. Firstly here the states of nature are increase stable and decrease and actions are investment options.
2. now choose the maximum payoff from each states of nature.
3. substract each entry of that state of nature from maximum payoff of that state of nature.
4. For eg in column of increase maximum is 7000 so first entry would be (7000-(-3000))=10000

investment decision	increase	stable	decrease
Day spa	$10000	$8000	$1000
Gift shop	$15000	$7000	$0
Motel	$0	$14000	$10000
Restaurant	$1000	$16000	$14000
theatre	$13000	$0	$2000

The above table basically represents the loss, so the worst scenario would be the maxium loss under each action and that is equal to maximum values in each row and then choosing the minimum of all those would give the optimal solution.

So minimum of ($10000,$15000,$14000,$16000,$13000)=$10000

For eg $10000 is highest in action 1 that is row 1, similarly $15000 is highest in action 2 ie row 2 and so on.

Therfore best investment is Day spa.