Using the MAXIMIN method, which decision alternative will you chose?

Question

a) Sell company
b) Form joint venture
c) Sell software on own

Success Moderate Success Failure
Sell Company 150 150 110.00
Form Joint Venture 435.00 200 -100
Sell Software on own 570 184.00 -300

Answer 1

The MAXIMIN method involves selecting the decision alternative that has the best worst-case scenario. To apply this method, we first identify the worst-case (minimum) payoff for each decision alternative, and then choose the alternative that has the highest of these minimum payoffs.

Here are the payoffs for each alternative:

1. Sell Company

   • Success: 150
   • Moderate Success: 150
   • Failure: 110
   • Minimum Payoff: 110

2. Form Joint Venture

   • Success: 435
   • Moderate Success: 200
   • Failure: -100
   • Minimum Payoff: -100

3. Sell Software on Own

   • Success: 570
   • Moderate Success: 184
   • Failure: -300
   • Minimum Payoff: -300

Now, we summarize the minimum payoffs:

• Sell Company: 110
• Form Joint Venture: -100
• Sell Software on Own: -300

Among these, the maximum of the minimum payoffs is 110 from the "Sell Company" alternative.

Therefore, using the MAXIMIN method, the best decision alternative to choose is:

Sell Company.