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DecisionUnderUncertainty
InthisLesson TheSavageMiniMaxregretcriterion. TheLaplaceinsufficientreasoncriterion.
Duration:30minutes
SavageMiniMaxregretcriterion
TheMiniMaxRegretcriterionfocusesonavoidingregretsthatmayresultfrommakinganonoptimal decision. Although regret is a subjective emotional state, the assumption is made that it is quantifiable in direct (linear) relation to the rewards of the payoff matrix. Regret is defined as the opportunitylossr(ai,j)tothedecisionmakerifactionalternativeaiischosenandstateofnaturej happens to occur. Opportunity loss is the payoff difference between the best possible outcome underjandtheactualoutcomeresultingfromchoosingai.Formally: Ifv(ai,j)correspondstopositiveflowpayoffthen: r(ai,j)=max{v(ak,j)}v(ai,j) (1)
Notethatopportunitylossesaredefinedasnonnegativenumbers.ThebestpossibleOLiszero(no regret)andthehighertheOLvalue,thegreatertheregret. LetstrytopresentthecalculationsofSavageMiniMaxregretcriterionusingtheexamplewiththe companyssuppliesfromLesson1: 1. First we have to calculate the Opportunity Loss table using the formula (1) and the payoff matrixTable2fromLesson1: PayoffsTable a1 a2 a3 a4 InternationalHellenicUniversity ParaskevopoulosKonstantinos 1 1 5 8 21 30 2 10 7 18 22 3 4 OpportunityLossTable a1 a2 1 0 3 2 3 0 3 4
18 25 8 23
10 10 0 4 8 6 0
12 21 19 15
a3 16 11
a4 25 15 11
10 10 0 4 8 6 0
a3 16 11
a4 25 15 11
3. Attheendwechoosethealternativewiththeminimummaximumloss.Thusa2.
Laplaceinsufficientreasoncriterion
The Laplace criterion is the first to make use of explicit probability assessments regarding the likelihoodofoccurrenceofthestatesofnature.Asaresult,itisthefirstelementarymodeltouseall of the available information in the payoff matrix. The Laplace argument makes use of Johann Bernoulli'sPrincipleofInsufficientReason.Tobeginwith,Laplacepositsthattodealwithuncertainty rationally,probabilitytheorymustbeinvoked.Thismeansthatforeachstateofnaturejin,the decisionmakershouldassesstheprobabilitypjthatjwilloccur. Now the Principle of Insufficient Reason states that if no probabilities have been assigned by the decisionmaker,thenitfollowstherewasinsufficientreasonfordecisionmakertoindicatethatany onestatejwasmoreorlesslikelytooccurthananyotherstate.Consequently,allthestatesjmust be equally likely. Therefore, the probability pj for every j must be 1/n, where n is the number of statesofnaturein. Ifthevaluev(ai,j)representspositivepayoff(profit)thenalternativeamaxisselectedasthebest: amax=argaimax{ v(ai,j)} (1)
IfwetrytoapplythecalculationsofLaplacecriterionontheexamplefromLesson1usingformula2, wegetthefollowingresults:
InternationalHellenicUniversity ParaskevopoulosKonstantinos
BayesianNetworks
a1 a2 a3 a4
1 5 8 21 30
2 10 7 18 22
18 25 8 23
12 21 19 15
Thusthebestchoiceisalternativea2.
InternationalHellenicUniversity ParaskevopoulosKonstantinos