It is giving the one that does more damage, at least according to wikis and tooltips.
(Calculating a champs highest damage type done in a given game is something the game already does for camille.)
Theres basically 3 ways the game could handle it:
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If AD is highest, always do physical damage. If AP is highest, always do magic damage.
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Regardless of if AD/AP is higher, deal the damage type that results in most damage to the target.
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Regardless of if AD/AP is higher, deal the damage type that the user has primarily dealt during the game.
The first one is simplest, and is good for resulting in correct itemization choices from players who don't realise that "AD damage" doesn't necessarily mean physical damage, and "AP damage" doesn't necessarily mean magic damage. Potentially results in non-optimal damage, and could lead to weird optimisations on hybrid champs and weird champs like corki.
The second one is what the game currently does, and favours the user since they don't have to think and can just build normally and get the optimal damage type. Potentially frustrating to opponents who want to counter build them.
The third one is best for players looking to reactively counter build, since if someone is a major magic damage threat, they can build MR and don't need to worry about the damage type from the rune adapting.
It sounds like the OP feels it works the first way, the intended reality is the second way, and the requested change is for it to work the third way (despite that being a nerf).