Exhibit 14.3
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 70% and an expanding economy at 30%.
-The decision rule which determines the minimum payoff for each alternative and then selects the alternative associated with the largest minimum payoff is the
A) maximax decision rule.
B) maximin decision rule.
C) minimax regret decision rule.
D) minimin decision rule.

Question

Exhibit 14.3
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 70% and an expanding economy at 30%. 
-The decision rule which determines the minimum payoff for each alternative and then selects the alternative associated with the largest minimum payoff is the
A) maximax decision rule. 
B) maximin decision rule. 
C) minimax regret decision rule. 
D) minimin decision rule.

Quizplus · Accepted Answer

The maximin decision rule involves selecting the alternative with the highest minimum payoff, which is a strategy used under conditions of uncertainty to ensure the best of the worst-case scenarios.

Exhibit 14.3 The Following Questions Are Based on the Information Below