Modeling T.Reema T.Rawan.

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Presentation transcript:

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