Julie is planning to open a restaurant and is considering two possible locations.She has estimated the payoff for each location for each of three different possible levels of restaurant popularity (state of nature)as shown below. Using the maximax criterion she should choose location 2.

Question

Julie is planning to open a restaurant and is considering two possible locations.She has estimated the payoff for each location for each of three different possible levels of restaurant popularity (state of nature)as shown below.  Using the maximax criterion she should choose location 2.

Quizplus · Accepted Answer

The maximax criterion involves selecting the option with the highest possible payoff for the best possible state of nature. In this case, location 2 has the highest possible payoff for each level of popularity, so it is the best choice according to the maximax criterion.

Julie Is Planning to Open a Restaurant and Is Considering