The maximax method is an optimistic decision rule for uncertain outcomes. Without probabilities, it selects the alternative whose best possible payoff is highest, assuming the most favorable state of nature occurs. section 10.0 section 10.1.1
Apply the method systematically:
- List the alternatives, states of nature, and payoff for every alternative–state combination. section 10.1.1
- Compute each alternative’s maximum payoff across all states: maximax(i) = max(payoffᵢⱼ). section 10.1.1
- Choose the alternative with the largest row maximum. section 10.1.1
Investment alternatives
For strong and weak economic conditions, the maximum payoffs are $100,000 for Stock Market, $60,000 for Professional Soccer Club, $80,000 for a 50/50 combination, and $35,000 for a Savings Account. Maximax therefore selects Stock Market, despite its -$120,000 weak-economy payoff. section 10.1.1
>>> maximax['Maximax'] = \
>>> payoff_table[['Strong Economy', 'Weak Economy']].max(axis = 1)
>>> print(maximax)
Investment Alternatives Strong Economy Weak Economy Maximax
0 Stock Market 100000 -120000 100000
1 Professional Soccer Club 60000 -20000 60000
2 Stock Market / Soccer Club (50/50) 80000 -70000 80000
3 Savings Account 35000 35000 35000
A pandas payoff table adds a Maximax column by taking the row-wise maximum across economic states. section 10.1.1
