The minmax regret approach is a decision-making strategy used in situations where there is uncertainty about the outcomes of different actions. The goal of this approach is to minimize the maximum regret a decision-maker would feel from making a wrong choice.
To apply the minmax regret approach, you would first need to identify all possible alternatives and their potential outcomes. Next, you calculate the regret associated with each choice by comparing the potential outcomes to the best possible outcome for each scenario. The regret is defined as the difference between the best outcome and the outcome you would receive if you chose that particular option.
Once you have the regret values for all alternatives across different scenarios, you find the maximum regret for each alternative. The next step is to identify which alternative has the smallest maximum regret. This option is considered the best decision under the minmax regret criterion.
In essence, the decision you would make using the minmax regret approach is the one that minimizes potential disappointment from making an unfortunate choice, thus providing a more conservative yet strategically sound method of decision-making when faced with uncertainty.