The maximin method chooses the alternative with the highest worst-case payoff. It suits risk-averse decisions when outcome probabilities are unknown or unreliable. section 10.0 section 10.1
Apply the method as follows:
- List each alternative's payoff across every possible state of nature. section 10.1.2
- Find the minimum payoff in each alternative's row. section 10.1.2
- Select the alternative whose minimum payoff is largest: maximin = max(minimum payoffs). section 10.1.2
Investment choice
For $1 million invested under strong or weak economic conditions, the savings account has the highest minimum payoff: $35,000, compared with −$120,000 for the stock market, −$20,000 for a soccer club, and −$70,000 for a 50/50 combination. Maximin therefore selects the savings account. section 10.1.2
>>> maximin = payoff_table.copy() #1
>>> maximin['Maximin'] = \
>>> payoff_table[['Strong Economy',
>>> 'Weak Economy']].min(axis = 1) #2
>>> print(maximin) #3
Investment Alternatives Strong Economy Weak Economy Maximin
0 Stock Market 100000 -120000 -120000
1 Professional Soccer Club 60000 -20000 -20000
2 Stock Market / Soccer Club (50/50) 80000 -70000 -70000
3 Savings Account 35000 35000 35000
>>> highest_payoff = maximin['Maximin'].max() #4
>>> print("Highest Payoff:", highest_payoff) #5
Highest Payoff: 35000
The Python listing copies the payoff table, computes row minima with min(axis=1), prints the results, and extracts the largest minimum payoff. section 10.1.2
