Exhibit 14.1
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem.
-Refer to Exhibit 14.1. What formula should go in cell D5 to implement the maximax decision rule?
A) =MAX(MAX(B5:C5))
B) =MIN(B5:C5)
C) =AVERAGE(B5:C5)
D) =MAX(B5:C5)

Question

Exhibit 14.1
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. 
-Refer to Exhibit 14.1. What formula should go in cell D5 to implement the maximax decision rule?
A) =MAX(MAX(B5:C5)) 
B) =MIN(B5:C5) 
C) =AVERAGE(B5:C5) 
D) =MAX(B5:C5)

Quizplus · Accepted Answer

The maximax decision rule selects the option with the maximum possible payoff. Therefore, the formula in cell D5 should be =MAX(B5:C5). The option with the highest possible payoff in this case is Investment A if the economy expands, which gives a payoff of 8. If the economy declines, Investment B and C both give payoffs of 0, so the decision is a tie.

Exhibit 14.1 The Following Questions Are Based on the Information Below