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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. |
Type | | Definition | The choice in a set of options with the greatest potential gain irrespective of risk. | Related Concepts | |
Decision Making
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.
The difference between rational thought and logic.
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.
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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