Question

Mark all that are true:

1 - The Maximax decision criterion leads to selecting the strategy that would maximize the outcome, assuming the best conditions will prevail.
2 - The Maximin decision criterion leads to selecting the strategy that would maximize the outcome, assuming the worst conditions prevail.
3 - The Minimax decision criterion leads to selecting the strategy that would minimize the regret of not having selected the best strategy.
4 - The Maximum Expected Payoff decision criterion leads to selecting the strategy that would maximize the outcome, assuming all conditions have an equal likelihood.
A. 1 and 2
B. 3 and 4
C. 1, 2, and 3
D. 2, 3, and 4

Answer 1

The Maximax criterion assumes the best conditions and the Maximin assumes the worst conditions; both focus on maximizing outcomes, making statements 1 and 2 true. The Minimax regret criterion is about minimizing regret, and the Maximum Expected Payoff is about maximizing expected value based on probabilities, making statements 3 and 4 false.

Step-by-step explanation:

The question deals with decision-making criteria used in business and economics to evaluate various strategies under uncertainty. Here's a breakdown of what each criterion refers to:

• The Maximax decision criterion assumes the best conditions will prevail and leads to selecting the strategy that would maximize the outcome under these optimistic assumptions.
• The Maximin decision criterion is a risk-averse approach, assuming the worst conditions could prevail and choosing the strategy that would be best in that worst-case scenario.
• The Minimax regret criterion involves minimizing the potential regret one might have from not choosing the best strategy in hindsight; it's a measure of how 'badly' one could feel for missing out on better opportunities.
• The Maximum Expected Payoff criterion assumes that all conditions have an equal likelihood of occurring, and focuses on maximizing the expected outcome taking into account the probabilities of all possible conditions.

Based on these definitions:

1. True: The Maximax decision criterion leads to selecting the strategy that would maximize the outcome, assuming the best conditions will prevail.
2. True: The Maximin decision criterion leads to selecting the strategy that would maximize the outcome, assuming the worst conditions prevail.
3. False: The Minimax decision criterion does not focus on maximizing the outcome, but rather on minimizing potential regret.
4. False: The Maximum Expected Payoff decision criterion does not assume all conditions have an equal likelihood, but rather maximizes expected value based on the likelihood of different outcomes.

Thus, the correct answers that mark all that are true are 1 and 2, which corresponds to option A.