What is Maximax maximin and minimax?
What is Maximax maximin and minimax?
The maximax payoff criterion seeks the largest of the maximum payoffs among the actions. The maximin payoff criterion seeks the largest of the minimum payoffs among the actions. The minimax regret criterion seeks the smallest of the maximum regrets among the actions.
What is the minimax regret decision?
The minimax regret approach is to minimize the worst-case regret, originally presented by Leonard Savage in 1951. The aim of this is to perform as closely as possible to the optimal course.
What is maximum regret criterion?
The mini-max regret criterion in managerial economics bases business decisions on the maximum regret associated with each action. Regret measures the difference between each action’s payoff for a given state of nature and the best possible payoff for that state of nature.
What is the Maximax decision?
The Maximax decision rule is used when a manager wants the possibility of having the highest available payoff. It is called Maximax beacuse the manager will find the decision alternative that MAXImizes the MAXimum payoff for each alternative.
How do you work out Maximax?
The maximax criterion is much easier to do than the expected value. You simply look at the best you could do under each action (the largest number in each column). You then take the best (largest) of these. The largest payoff if you buy 20, 40, 60, and 80 bicycles are $550, 1270, 2050, and 2330 respectively.
What is the Maximin decision?
The Maximin decision rule is used for a risk-averse manager, who wants to minimize the possibility of having a poor outcome. It is called Maximin because the manager will find the decision alternative that MAXImizes the MINimum payoff.
How do I know which maximin I have?
The maximin criterion is as easy to do as the maximax. Except instead of taking the largest number under each action, you take the smallest payoff under each action (smallest number in each column). You then take the best (largest of these).
What is maximin decision criterion?
The Maximin criterion is a pessimistic approach. It suggests that the decision maker examines only the minimum payoffs of alternatives and chooses the alternative whose outcome is the least bad.
How is minimax regret criterion calculated?
Savage’s Minimax Regret criterion is formally defined as: OLij = (column j maximum payoff) – Rij – for positive-flow payoffs (profits, income) OLij = Rij – (column j minimum payoff) – for negative-flow payoffs (costs) where Rij is the payoff (reward) for row i and column j of the payoff matrix R.
What is the Maximax strategy?
A maximax strategy is a strategy in game theory where a player, facing uncertainty, makes a decision that yields the ‘best of the best’ outcome. All decisions will have costs and benefits, and a maximax strategy is one that seeks out where the greatest benefit can be found.
What is Maximin maximax and minimax regret?
Maximin, Maximax and Minimax Regret Decision Criteria/Rules Decision makers may use any one of the above criteriato make decisions in the following situations: • Where probabilities are available but the decision maker is not interested in average, long-run values (expected values) but on actual one-off outcomes.
What is an example of the Maximax rule?
The table then shows the profit or loss – for example, if he chooses to make 70 but demand is only 50, then he will make a loss of $60. The question is then which output level to choose. The maximax rule involves selecting the alternative that maximises the maximum payoff available.
What is the maximum regret strategy?
It is a strategy which seeks to minimize the maximum possible regret ie opportunity cost that will be incurred as a result of having made the wrong decision (e.g. contribution/profit/cost savings forgone). The opportunity cost associated with each decision option will be summarized in a regret matrix (opportunity cost table).
Is the maximax criteria suitable for optimists?
This approach would be suitable for an optimist, or ‘risk-seeking’ investor, who seeks to achieve the best results if the best happens. The manager who employs the maximax criterion is assuming that whatever action is taken, the best will happen; he/she is a risk-taker.
