What does the maximin rule focus on in decision-making?

What does the maximin rule focus on in decision-making?

• A. Maximizing the total possible profit
• B. Minimizing the chances of regret
• C. Selecting the alternative that maximizes the minimum pay-off
• D. Maximizing the probability of success

Answer: (C)

The maximin rule is a decision-making strategy used in scenarios involving uncertainty, particularly in the field of economics and decision theory. This rule focuses on selecting the alternative that maximizes the minimum pay-off. The underlying logic is to safeguard against the worst-case scenario; decision-makers prioritize their options based on the best outcome they can secure when the outcome is at its lowest. For example, if a decision-maker is faced with several alternatives, the maximin approach involves evaluating the worst possible outcome of each alternative and choosing the one that has the highest minimum pay-off. This approach is particularly useful in situations where a decision-maker wants to avoid significant losses and is risk-averse. In contrast, other approaches such as maximizing total profit or maximizing the probability of success do not inherently account for worst-case outcomes and can lead to decision-making that carries greater risk. The maximin rule stands out for its focus on minimizing regret by ensuring that the chosen alternative is robust enough to withstand unfavorable conditions.

The maximin rule is a decision-making strategy used in scenarios involving uncertainty, particularly in the field of economics and decision theory. This rule focuses on selecting the alternative that maximizes the minimum pay-off. The underlying logic is to safeguard against the worst-case scenario; decision-makers prioritize their options based on the best outcome they can secure when the outcome is at its lowest.

For example, if a decision-maker is faced with several alternatives, the maximin approach involves evaluating the worst possible outcome of each alternative and choosing the one that has the highest minimum pay-off. This approach is particularly useful in situations where a decision-maker wants to avoid significant losses and is risk-averse.

In contrast, other approaches such as maximizing total profit or maximizing the probability of success do not inherently account for worst-case outcomes and can lead to decision-making that carries greater risk. The maximin rule stands out for its focus on minimizing regret by ensuring that the chosen alternative is robust enough to withstand unfavorable conditions.