Decision Theory
Decision Theory
Decision Theory
Maximax Criterion
Maximin Criterion
Mimimax Regret Criterion
Maximax Criterion
(Optimistic Approach)
1,400,000 1,200,00
Rice
A. (Maximax Criterion)
1,400,000 1,200,00
Rice
maximum payoff
Step 2: identify the highest maximum payoff. The
minimum payoff can be found.
Rice 1,400,000
1,400,000 1,200,00
Rice
Minimum payoff
Step 2: Identify the lowest minimum payoff.
Pass fail
Corn 2,000,000 700,000
Pass fail
Corn 2,000,000 700,000
1,400,000 1,200,00
Rice
Step 2: Subtract every element from the
largest payoff in both columns
Pass
Corn = 2,000,000 – 2,000,000 = 0
Wheat = 2,000,000 – 1,100,000= 900,000
Rice= 2,000,000 -1,400,000 = 600,000
Fail
Corn= 1,200,000 – 700,000 = 500,000
Wheat= 1,200,000 – 1,200,000 = 0
Step 3: select the largest amount in each
row.
Crop Trade Bill Crop Minimax
Payoffs
Pass fail
Corn 0 500,000 Corn 500,000
600,000 0
Rice 600,000
Rice
Step 4: Identify the maximum regrets
Crop Minimax Payoffs
Corn 500,000
Wheat 900,000
minimum
Rice 600,000