What Minimax decision rule is
The Minimax decision rule is an optimization technique commonly used in decision-making and game theory. It is a method of finding the optimal solution in a certain situation by minimizing the maximum value of the losses. The Minimax decision rule is based on the idea that a decision-maker should minimize the maximum risk associated with any given decision.
The steps for the Minimax decision rule are as follows:
- Identify all possible outcomes and assign a value to each of them.
- Calculate the maximum risk associated with each outcome.
- Select the outcome with the lowest maximum risk.
- Implement the decision associated with the selected outcome.
- Monitor the results and modify the decision if necessary.
Examples
-
Minimax decision rule is often used in game theory to calculate the optimal move a player should make in order to maximize their chances of winning.
-
Minimax decision rule is also used in portfolio management to determine the best portfolio allocation of assets in order to minimize risk while still maximizing return.
-
Additionally, the Minimax decision rule can be used in decision making problems in operations research to select the optimal decision from a set of alternatives which minimizes the maximum loss.