made based upon the information data available about the occurrence of events as well as the decision situation. There are two types of decision making situations: certainty and uncertainty. Decision making under certainty: In this case the decision maker has the complete knowledge of consequence of every decision choice with certainty. In this decision model, assumed certainty means that only one possible state of nature exists.
Decision making under uncertainty: Under conditions of uncertainty, only pay-offs are known and nothing is known about the lilkelihood of each state of nature. XII Std - Business Maths & Stat EM Chapter - - Operations Research Such situations arise when a new product is introduced in the market or a new plant is set up. The number of different decision criteria available under the condition of uncertainty is given below. .
. Maximin and Minimax Strategy Maximin criteria This criterion is the decision to take the course of action which maximizes the minimum possible pay-off. Since this decision criterion locates the alternative strategy that has the least possible loss, it is also known as a pessimistic decision criterion. The working method is: (i) Determine the lowest outcome for each alternative.
(ii) Choose the alternative associated with the maximum of these. Minimax criteria This criterion is the decision to take the course of action which minimizes the maximum possible pay-off. Since this decision criterion locates the alternative strategy that has the greatest possible gain. The working method is: (iii) Determine the highest outcome for each alternative.
(iv) Choose the alternative associated with the minimum of these. Example . Consider the following pay-off (profit) matrix Action States Action States ( S ) ( S ) ( S ) ( S ) A A A A Determine best action using maximin principle. Action States Minimum ( S ) ( S ) ( S ) ( S ) A A A