Consider the following decision scenario: $$\begin{array} { c }
{ \text { State of Nature } } \
\begin{array} { | l | l | l | }
\hline & \text { High } & \text { Low } \
\hline \text { Buy } & \$ 80 ^ { * } & 0 \
\hline \text { Rent } & 70 & 30 \
\hline \text { Lease } & 30 & 50 \
\hline
\end{array}\end{array}$$ *PV for profits ($000) The maximax strategy would be:
A) buy.
B) lease.
C) rent.
D) high.
E) low.

Question

Consider the following decision scenario: $$\begin{array} { c } 
 { \text { State of Nature } } \
\begin{array} { | l | l | l | } 
\hline & \text { High } & \text { Low } \
\hline \text { Buy } & \$ 80 ^ { * } & 0 \
\hline \text { Rent } & 70 & 30 \
\hline \text { Lease } & 30 & 50 \
\hline
\end{array}\end{array}$$ *PV for profits ($000) The maximax strategy would be:
A) buy.
B) lease.
C) rent.
D) high.
E) low.

Quizplus · Accepted Answer

Maximax decision rule is based on the concept that decision-makers always prefer the alternative that maximizes the maximum gain. To apply this rule, we determine the maximum possible profit under each possible decision during each state of nature and select the decision that represents the maximum of these maximum possible profits.

In this scenario, the maximum possible profit for each decision during each state of nature are:
- Buy: 80 (high state of nature)
- Rent: 70 (high state of nature)
- Lease: 50 (low state of nature)

Therefore, the maximax decision is to choose "Buy" as it gives the maximum of the maximum possible profits (80).

Consider the Following Decision Scenario *PV for Profits ($000) the Maximax Strategy Would Be: A)

Consider the Following Decision Scenario *PV for Profits ($000) the Maximax Strategy Would Be:
A)