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3 Decision Analysis Mistakes That Cost Marks

3 mistakes that cost marks in decision analysis

Lesson notes

Key points

Mixing up maximax/maximin: Maximax is optimistic, picking the best of best outcomes; maximin picks the best of worst outcomes.
Regret from the wrong max: Regret is the column's best payoff minus each payoff, computed per state of nature, not per row.
Probabilities not summing…: Expected monetary value needs probabilities summing to one; check them before multiplying, or every EMV is wrong.

Takeaway: Regret is measured per state of nature, column by column.

Quick check: How is a regret value calculated in a payoff table?

Row best minus each payoff
Column best minus each payoff
Payoff times its probability

Regret compares against the best payoff under the same state of nature.

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