The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the payoff table shown next,giving the estimated profit when a retailer purchases from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. What would be the best decision if the maximax strategy is used?
A)1
B)2
C)3

Question

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the payoff table shown next,giving the estimated profit when a retailer purchases from one to four dozen T-shirts. The probability of demand for each state of nature is also shown.   What would be the best decision if the maximax strategy is used?
A)1 
B)2 
C)3

Quizplus · Accepted Answer

The maximax strategy assumes that the decision-maker wants to maximize the maximum possible outcome. In other words, the decision-maker wants to choose the option that has the highest possible payoff when the best state of nature occurs.

Looking at the payoff table, the highest payoff in each row is highlighted in green. Using the maximax strategy, we choose the option with the highest green value in each column, and then select the one with the highest overall payoff. 
- For the first column, the highest green value is in the 4th row (when 4 dozen are purchased), with a payoff of $2400. 
- For the second column, the highest green value is in the 4th row, with a payoff of $3600. 
- For the third column, the highest green value is in the 4th row, with a payoff of $4800. 
- For the fourth column, the highest green value is in the 4th row, with a payoff of $5600.

Thus, the best decision using the maximax strategy is to choose option D, which is to purchase 4 dozen T-shirts, regardless of the state of nature.

The National Sales Manager for "I Colored This" (ICT)T-Shirts Provides