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Chapter 15

Example 4

A company is choosing which of three new products to make A, B or C It has
calculated likely pay-offs under three possible scenarios (I, II or III), giving the
following pay-off table:

Profit (loss) Product chosen

Scenario A B C
I 20 80 10

II 40 70 100
III 50 (10) 40

Using maximin, which product would be chosen?

Using maximin, a pessimist would consider the poorest possible outcome for
each product and would ensure that the maximum pay-off is achieved if the
worst result were to happen.

Therefore, product A would be chosen resulting in a minimum payoff of 20
compared to a minimum payoff of 10 for products and C.

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