Exhibit 14.1
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.
-Refer to Exhibit 14.1. What formula should go in cell D5 to implement the maximin decision rule?
A) =MAX(MIN(B5:C5))
B) =MIN(B5:C5)
C) =AVERAGE(B5:C5)
D) =MAX(B5:C5)

Question

Exhibit 14.1
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. 
-Refer to Exhibit 14.1. What formula should go in cell D5 to implement the maximin decision rule?
A) =MAX(MIN(B5:C5)) 
B) =MIN(B5:C5) 
C) =AVERAGE(B5:C5) 
D) =MAX(B5:C5)

Quizplus · Accepted Answer

According to the maximin decision rule, the investor should select the investment with the highest payoff in the worst-case scenario. In this case, the worst-case scenario is when the economy declines in both years. By selecting the minimum value from each row, we can determine the lowest possible payoff for each investment. The maximum value of these minimum payoffs will give us the best choice, which is Investment B with a payoff of $10,000.

Exhibit 14.1 The Following Questions Are Based on the Information Below