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Stepping out Performing Arts Center

Autor:   •  December 21, 2012  •  Research Paper  •  1,107 Words (5 Pages)  •  1,027 Views

Page 1 of 5

We all make decisions of varying importance every day, so the idea that decision making can be a rather sophisticated art may at first seem strange. However, studies have shown that most people are much poorer at decision making than they think. As you know, there are often many solutions to a given problem, and the decision maker's task is to choose one of them. The task of choosing can be as simple or as complex as the importance of the decision warrants, and the number and quality of alternatives can also be adjusted according to importance, time, resources and so on.

Once the decision has been organized into a payoff, several criteria are available for making the actual decision (Taylor III, 2007). These decision criteria, which will determine how much profit Stepping Out Performing Arts Center will make in good economic conditions and poor economic conditions, include maximax, maximin, minimax regret, Hurwicz, and equal likeihood. The investor must select the criterion or combination of criteria that best fit the needs of Stepping Out Performing Arts Center (Taylor III, 2007).

Maximax criterion

The maximax looks at the best that could happen under each action and then chooses the action with the largest value. They assume that they will get the most possible and then they take the action with the best case scenario. The maximum of the maximums or the "best of the best". This is the lotto player; they see large payoffs and ignore the probabilities.

Example:

Decision Good conditions Poor economic condition

Warehouse $50,000 30,000

Office building $100,000 (40,000)

Apartment building $30,000 10,000

The dicision to buy the Office building will result in the largest payoff $100,000, however this decision is completely ignores the possibility of the potential loss of $40,000.

Maximin criterion

The maximin person looks at the worst that could happen under each action and then choose the action with the largest payoff. They assume that the worst that can happen will, and then they take the action with the best worst case scenario (Taylor III, 2007). The maximum of the minimums or the "best of the worst". This is the person who puts their money into a savings account because they could lose money at the stock market.

Example:

I could put my $10,000 in a genetic engineering company, and if it creates and patents a new bacteria that helps plants resist frost, I could make $50,000. However, I could also lose the whole $10,000, but if I invest in a soap company, I might make only $20,000, but if the company goes completely broke and gets liquidated, I'll still get back $7,000

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