What is a payoff table used for?

A payoff table is a critical tool in decision theory and helps to present the potential outcomes of different decisions in a clear and organized manner. It outlines the payoffs for each combination of decisions and states of nature, allowing decision-makers to visualize how various choices may lead to different results. By structuring the information this way, a payoff table enables a more straightforward comparison of the potential benefits or returns associated with each decision path.

These tables are particularly valuable when there are multiple decisions to be made and various possible outcomes, as they clarify the relationship between choices and their associated payoffs, facilitating better decision-making under uncertainty. This visual representation helps in analyzing strategies to maximize expected payoffs or minimize losses.