Instructions: This calculator allows you to use the Maximin criterion (also known as pessimistic criterion) to make a decision under uncertainty. Please first indicate the number of decision alternatives and states of nature. Then type the corresponding payoff matrix, and optionally the name of the decision alternatives and states of nature in the form below
Hurwicz's Criterion, or the realism criterion is a technique used to make decisions under uncertainty. The setting is for a decision make to be faced to uncertain states of nature and a number of decision alternatives that can be chosen. The decision made and the final state of nature (which the decision maker does not know beforehand) determines the payoff.
Under this realism criterion, the decision maker calculates a weighted average between the best and worst possible payoff for each decision alternative (among all possible states of nature, for that specific alternative), and then she chooses the decision that has the maximum weighted average. So, this method is considering that things will go somewhere in the middle between going well and badly.
For each decision alternative, the weight \(\alpha\) is used to compute Hurwicz value;\[ H_i = \alpha \times \max_i + (1-\alpha) \times \min_i \]
Hurwicz's Criterion is not the only strategy to make decisions under uncertainty. Depending on the risk stance and whether or not the probability of the states of nature are known, there are other alternatives, such as the Maximax criterion (the optimistic criterion) , the Maximim criterion (the pessimistic criterion) , the Expected Monetary Value Method , the Minimax Regret Method , or the Expected Opportunity Loss Methods , just to mention a few.