Maximax Criterion : The criterion is just opposite of above criterion. This criterion was suggested by Leonid Hurwitz. Here decision maker’s thinking is optimistic. According to this rule choose course of action which maximizes pay off under every course of action and then select the act with maximum pay off under every course of action which has maximum pay off. Since this decision rule locates the course of action which has maximum possible pay-off, it is also known as optimistic decision criterion.
Thus this criterion helps us to identify the best possible outcome in each course of action i.e. Minimum loss or maximum profit that would occur under given course of action and select the best out of the best outcome in order to select course of action using maximum criterion. To illustrate maximum criterion consider following pay off table.
Pay off Table
|
States of Nature |
Courses of Action |
||
|
A1 |
A2 |
A3 |
|
|
S1 |
1,880 |
1,840 |
1,700 |
|
S2 |
1,600 |
1,650 |
1,620 |
|
S3 |
1,400 |
1,430 |
1,250 |
Maximum pay off under A1 is 1,880, under A2 is 1,840 and under A3 is 1,700. As the
decision maker under maximax criterion is optimistic he will select the act with
maximum pay off. Max {1880,1840,1700} = 1880.
Pay off 1880 corresponds to act Ai. Thus choose A1 using maximax criterio.
If we decide to take action using maximin criterion then minimum pay off under A1 is 1,400, under A2 is 1,430 and under A3 is 1,250.
Further max {1400, 1430, 1250} = 1430. 1430 corresponds to A2. Hence using
maximin criterion choose A2 as decision.
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