Final answer:
The question revolves around making decisions under uncertainty in economics using three different methods: maximax (most optimistic), maximin (most cautious), and equally likely (average potential outcomes). These methods help identify optimal choices, known as consumer equilibrium, based on marginal utility comparisons.
Step-by-step explanation:
The decision-making process described in the question is based on comparing marginal utility to make optimal choices under uncertainty in an economic context. To determine the best decision using different decision-making criteria, let's explain how the maximax, maximin, and equally likely methods are applied:
Maximax Strategy
The maximax strategy involves choosing the option with the highest potential outcome. This strategy is optimistic, assuming the best-case scenario will occur.
Maximin Strategy
The maximin strategy is a conservative approach where the decision-maker looks for the option with the best worst-case scenario. i.e., they choose the alternative with the highest minimum value.
Equally Likely Strategy
The equally likely (or Laplace) strategy assumes that all states of nature have the same probability of occurring. The decision is made by averaging the benefits of each choice and selecting the one with the highest average.
The concepts in the example regarding utils, T-shirts, and movies illustrate the principle of utility maximization, known as consumer equilibrium. This is the point where an individual cannot increase their utility by reallocating their spending between two goods, because the marginal utility per dollar spent on each good is equal.