A young graduate has been offered two positions in different companies. One position is relatively secured with a decent wage, but the company would lower their employees’ wages to avoid redundancies during a recession. The other company offers less money but would change its wage system during a recession by lowering the base salary and implementing a bonus scheme for the best performing employees. The graduate, aware of the difficult economic climate must make a decision according to the different states of nature.

State of Nature Good Recession Company A (no bonus) $25,000 $22,000 Company B (bonus) 24,000 30,000 Select the best decision, using the following decision criteria.

a. Minimax regret

b. Hurwicz (α = .3)

c. Equal likelihood

 LO.1