You have a decision to invest $10,000 in any of four different companies. You estimate the probabilities that the economy will be favourable or unfavourable and you estimate the percent returns over the next year. Which company is chosen using the maximax criterion?
A) Company 1
B) Company 2
C) Company 3
D) Company 4

Question

You have a decision to invest $10,000 in any of four different companies. You estimate the probabilities that the economy will be favourable or unfavourable and you estimate the percent returns over the next year.  Which company is chosen using the maximax criterion?
A) Company 1 
B) Company 2 
C) Company 3 
D) Company 4

Quizplus · Accepted Answer

The maximax criterion is to choose the option with the maximum possible return. Comparing the best returns for each company under the favourable and unfavourable economic conditions, we can see that Company 1 has the highest potential returns under favourable economic conditions (18%) and second-highest under unfavourable conditions (5%), making it the best choice under the maximax criterion.

You Have a Decision to Invest $10,000 in Any of Four