Business Statistics

Chapter 19 | Statistical Decision Theory 735

the highest. In other words, a decision maker selects the best profit (maximum profit) from the set of

worst profits (minimum profit).

Minimax criterion is used by a decision maker when consequences are given in the form of cost

or opportunity loss. In this approach, a decision maker determines the maximum cost or opportunity

loss over all the events or states of nature and then selects the act for which cost or opportunity loss

is minimum.

In the curd pack example, minimum profits associated with various act are given as below:

A

1

: 0 A

2

: –1000 A

3

: –2000 A

4

: –3000 A

5

: – 4000

According to the ...