What is Maximin Criterion?


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Maximin Criterion : This criterion is also called Waldian Criterion as it was suggested  by Abraham Wald. Here decision makers thinking is pessimist. According to this rule choose the course of action which maximizes the minimum possible profits or pay offs. Thus first find minimum pay off under every course of action and select the act with maximum pay off under every course of action and select the act with maximum pay off among selected minimum pay offs. Since this decision rule locates the course of action  that has the least possible pay off, it is also known as a pessimistic decision criterion. Thus this criterion helps to identify the worst possible outcome in each course of action i.e. maximum loss or minimum profit that would occur under given course of action and then select the best out of the worst – outcome in order to select the best course of action.

To illustrate above terminology consider following conditional pay off matrix where A1, A2, A3 and A4 are four Courses of action and S1, S2, S3, S4 four states of nature.

Pay off Table

States of Nature

Courses of Action

A1

A2

A3

A4

S1

0

10

15

  20

S2

-20

30

40

100

S3

40

20

20

100

S4

10

15

10

  30

          Note that minimum pay of under A1 is -20, under A2 is 10, under A3 10 and under 20. Now we have to find maximum among -20, 10, 10, 20 which is 20. Hance using
maximum criterion best course of action is A4.


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MT UVA BMS

MT UVA- University, Vocational and Affiliated Education for BMS

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