The maximax criterion is the option in a set of choices that maximizes potential gain irrespective of risk. As the maximax choice doesn't consider risk at all it isn't usually an optimal choice. However, it is a reasonable common choice due to a number of factors:
OptimismIf you believe that fortune favors the bold, the maximax choice may be attractive. The maximax criterion is associated with optimism as a strategy or as a personality trait. For example, a young entrepreneur may adopt maximax choices such as the decision to compete directly with a large firm as opposed to choosing a smaller niche that is easier to win. This may lead to quick cycles of failure and learning that allow the entrepreneur to eventually find a way to their goals.
Nothing To LoseRisks don't mean as much when you don't have much to lose. For example, a firm with no customers has less to risk from a bold marketing strategy than a firm with 90% of the market that doesn't want to lose existing customers.Maximax choices occur when a person is rewarded for success but incurs no cost for failure. For example, a stock trader who is betting other peoples money with large rewards if they return 10% or more but few consequences if they lose money.
OptimizationIn some cases, the maximax criterion happens to be the optimal choice. For example, a hockey team with 2 minutes on the clock that is two goals down may take extraordinary risks such as pulling their goalie if they need to tie the game to survive into the playoffs.
This is the complete list of articles we have written about decision making.
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A list of decision making techniques.
The observation that groups may make collective decisions that are viewed as wrong or irrational by each individual member of the group.
A complete guide to the decision making process.
Rational thought is often somewhat logical but includes factors such as emotion, imagination, culture, language and social conventions.
The common types of uncertainty in decision making and strategy.
A definition of information costs with examples.
A definition of reverse brainstorming with examples.
The definition of decision fatigue with examples.
Taking a position that you do not necessarily agree with for the purposes of argument.
The definition of paradox of choice with examples.
A list of decision theories.
An overview of sanity checks, a decision making and problem solving technique.
Overview of preserving ambiguity.
Strategic dominance is your best choice in a given situation.
The definition of indecision with examples.
A list of group decision strategies and techniques.
The definition of normative decision making with examples.
The definition of non-decision with examples.
Examples of decisions made with different decision making approaches.
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