Major uncertainty calls for a “minimax” strategy

Minimax is a strategy that aims for the smallest possible (mini) loss or cost when the worst-case (max) scenario materialises. When there is a high level of uncertainty, minimax is a prudent strategy to guard against the worst. We give two examples: There is currently a high level of uncertainty surrounding the growth outlook for OECD countries, both in the short term and the long term. Under a minimax strategy, governments should make sure they are in a position to respond to a situation of very weak growth, for example by giving themselves significant leeway to conduct countercyclical policies and not basing long-term strategies (budget, pensions, etc.) on the assumption of strong growth; Investors also face a high degree of uncertainty, over growth, inflation, monetary policy and oil prices. The worst -case scenario would probably be a sharp rise in interest rates linked to resurgent inflation or a sharp rise in oil prices. The very high level of debt ratios would then lead to a debt crisis. A minimax strategy would lead investors to invest in financial assets that hedge against a debt crisis: government bonds from low-debt countries, financial assets issued by low-debt companies, etc.