We have $1,000 to invest. All the money must be placed in one of three investments: gold, stock, or money market certificates. If $1,000 is placed in an investment, the value of the investment one year from now depends on the state of the economy (see Table).
|
Value of $1,000 |
State 1 |
State 2 |
State 3 |
|
Money market |
|
|
|
|
certificate |
$1,100 |
$1,100 |
$1,100 |
|
Stock |
$1,000 |
$1,100 |
$1,200 |
|
Gold |
$1,600 |
$300 |
$1,400 |
Assume that each state of the economy is equally likely. For each of the following decision criteria, determine the optimal decision:
a maximin
b maximax
c minimax regret
d expected value