Question

A person wants to invest in one of three alternative investment plans: Stock, Bonds, and Debentures. It is assumed that the person wishes to invest all of the funds in a plan. The pay-off matrix based on three potential economic conditions is given in the following table:

Alternative	Economic conditions
	High growth (Rs.)	Normal growth (Rs.)	Slow growth (Rs.)
Stocks	10000	7000	3000
Bonds	8000	6000	1000
Debenture	6000	6000	6000

Answer 1

(i) Maximin rule

Alternative	Economic conditions			Minimum pay-off
	High growth (Rs.)	Normal growth (Rs.)	Slow growth (Rs.)
Stocks	10000	7000	3000	3000
Bonds	8000	6000	1000	1000
Debenture	6000	6000	6000	6000

Max (3000, 1000, 6000) = 6000. Since the maximum value is 6000, he must invest in debentures by the maximin criteria. 

(ii) Minimax rule

Alternative	Economic conditions			Maximum pay-off
	High growth (Rs.)	Normal growth (Rs.)	Slow growth (Rs.)
Stocks	10000	7000	3000	1000
Bonds	8000	6000	1000	8000
Debenture	6000	6000	6000	6000

Min (10000, 8000, 6000) = 6000. Since the minimum value is 6000, he must invest in debentures by the minimax criteria.