Minimax Regret

Minimax regret is a decision-making strategy used under uncertainty where a participant chooses the action that minimizes the maximum possible regret they could experience. Regret is defined as the difference between the payoff of the chosen action and the payoff that would have been obtained if the best possible decision had been made.

In highly volatile crypto markets, traders often use this approach to avoid catastrophic losses rather than just maximizing gains. It is a conservative strategy that focuses on protecting capital against the worst-case scenario.

This mindset is particularly useful in derivative trading, where tail risk can lead to total liquidation. By evaluating the maximum potential regret of various positions, traders can construct portfolios that remain resilient even when market conditions shift unexpectedly.