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Payoff and Opportunity Loss Tables

In the following payoff and opportunity loss tables circle and label the payoff or loss associated with the following decision-making criteria under uncertainty.
a. maximax
b. maximin
c. equally likely
d. minimax

Payoff Table
State of Nature
Alternatives A B Row Average
1 100 150 125
2 175 125 150

Opportunity Loss Table
State of Nature
Alternatives A B
1 75 0
2 0 25

Solution Preview

a. Maximax
The Maximax criterion looks at the best possible results. Maximax means 'maximize the maximum profit'.

State of Nature
Alternatives A B Maximum Profit
1 100 150 150
2 175 125 175

Hence the alternatives 2 would be chosen as the best decision using the maximax criterion

b. Maximin
The maximin decision rule suggests ...

Solution Summary

The solution provides step by step method for the calculation of decision-making criteria under uncertainty. Formula for the calculation and Interpretations of the results are also included.

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