modeling T.Reema T.Rawan
Payoff Table (decision table) State of nature or Outcomes Alternative State of nature Solid Growth (%) Stagnation (%) Inflation (%) Bonds 12 6 3 Stocks 15 -2 CDs 6.5 Decision Alternative payoffs
MaxiMin MaxiMin the minimum payoff (best of worst ) min 3 -2 6.5 Alternative State of nature Solid Growth (%) Stagnation (%) Inflation (%) Bonds 12 6 3 Stocks 15 -2 CDs 6.5 min 3 -2 6.5 The optimal solution is the max= 6.5
MiniMax Regret Minimizes the maximum Regret Alternative State of nature Solid Growth (%) Stagnation (%) Inflation (%) Bonds 12 6 3 Stocks 15 -2 CDs 6.5 Maximum
MiniMax Regret Minimizes the maximum Regret Alternative State of nature Solid Growth (%) Stagnation (%) Inflation (%) Bonds 12 6 3 Stocks 15 -2 CDs 6.5 6.5 – 6 = 0.5 15 - 12 = 3 6.5 – 3 = 3.5 15 - 15 = 0 6.5 – 3 = 3.5 6.5 – (-2 )= 8.5 15 - 6.5 = 8.5 6.5 – 6.5 = 0 6.5 – 6.5 = 0 Regret = Best payoff – payoff Received
Regret table Max regret 3.5 8.5 8.5 The optimal solution is 3.5 Alternative State of nature Solid Growth (%) Stagnation (%) Inflation (%) Bonds 3 0.5 3.5 Stocks 8.5 CDs Max regret 3.5 8.5 8.5 The optimal solution is 3.5
How to create decision table and calculate MinMax and MaxMin by using Excel:
1- First select the row to calculate Min:
2- Then from Home press AutoSum then Select Min:
3- Repeat the previous steps to complete the table :
4- Select the Min values then choose Max:
5- The final Solution for MaxMin: The optimal solution is the max= 6.5
Repeat steps for MinMax good luck