Table 145

U-Pump's Weekly Profit Contribution Payoff Matrix

Reduce Price Maintain Current Price

Reduce Price Maintain Current Price

come from this decision is greater than the minimum $1,000 payoff possible by maintaining the current price.

Although the maximin criterion suffers from the obvious shortcoming of focusing on the most pessimistic outcome for each decision alternative, it should not be dismissed as naive and unsophisticated. The maximin criterion implicitly assumes a very strong aversion to risk and is appropriate for decisions involving the possibility of catastrophic outcomes. When decision alternatives involve outcomes that endanger worker lives or the survival of the organization, for example, the maximin criterion can be an appropriate technique. Similarly, if the state of nature that prevails depends on the course of action taken by the decision maker, the maximin criterion might be appropriate. In the preceding example, one might expect that a decision by U-Pump to reduce prices would cause the competitor to follow suit, resulting in the worst possible outcome for that decision alternative.

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