Sealing the deal: The sealed-bid auction

266 Part IV: Anticipating Surprises: Risk and Uncertainty

Figure 15-1:

Payoff matrix.

Simplifying Decision-Making Criteria

After you identify your possible actions and how the various states of nature affect the outcome of those actions, you need to decide what to do. A variety of criteria enable you to choose among alternative actions after you develop the payoff matrix; each criterion has different advantages and disadvantages.

Determining the biggest guaranteed win with the maxi-min rule

You’ve probably been told to make the best of a bad situation. That in essence is the maxi-min criterion. With the maxi-min criterion, your decision is based upon the minimum or worst payoff associated with each action. For each action, you note the minimum payoff.

You make the best of a bad situation by choosing the action whose minimum payoff is best or largest.