An individual must decide whether or not to pursue a business opportunity. If he does pursue the opportunity, then he will get a $20 profit if the business is very successful and a $10 profit if the business is not very successful. Apply the maximin and minimax regret criteria to this decision.
A) Maximin: Do not invest. Minimax regret: Do not invest.
B) Maximin: Do not invest. Minimax regret: Invest.
C) Maximin: Invest. Minimax regret: Do not invest.
D) Maximin: Invest. Minimax regret: Invest.

Question

Quizplus · Accepted Answer

Maximin criterion suggests choosing the action with the best of the worst possible outcomes. Here, the worst outcome of investing is better than not investing (since the lowest profit from investing is $10, which is better than $0 from not investing). Minimax regret involves minimizing the maximum regret you might feel. Investing has a potential regret of $0 (if the business is successful), which is less than the regret of not investing if the business would have been successful.

An Individual Must Decide Whether or Not to Pursue a Business