Quantitative Techniques: Theory and Problems

EXPECTED REGRET

The concept of expected regret provides an alternative method of solving a decision problem for the optimal stock action. Rather than maximising expected profit, one can minimise the value of regret or the opportunity loss.

The steps involved in the calculation of expected regret are as under:

Step 1→	Prepare the Payoff Table.
Step 2→	Prepare Opportunity Loss Table (or Regret Table) by subtracting all the payoff elements of an event from the highest payoff for that event.
Step 3→	Assign probabilities to the events.
Step 4→	Calculate Expected Regret for each strategy by weighting the conditional values by the assigned probabilities and adding the weighted conditional values to obtain expected regret.
Step 5→	Select ...