CMA Intermediate · Management Accounting · Decision Theory
A decision-maker faces three acts with the following payoffs (in Rs lakh) under three states of nature. A1: 40, 25, 10; A2: 30, 30, 20; A3: 50, 15, 5. Using the maximin criterion, which act is chosen?
A2 is chosen. Under maximin the decision-maker finds the worst payoff of each act (10, 20 and 5) and picks the act whose worst outcome is best. A2 has the highest minimum of Rs 20 lakh, so it is selected.
- AA1
- BA2Correct
- CA3
- DA1 or A3, as both have the same maximin value
Explanation
Maximin picks the act with the highest minimum payoff. Minimums are A1 = 10, A2 = 20, A3 = 5. The highest of these is 20, so A2 is chosen. A3 has the highest single payoff of 50 and would be the maximax choice, not maximin.
Did you get it right without looking?
One question tells you little. A timed set on Decision Theory shows your real accuracy, how long you take and where you lose marks.
More Decision Theory questions
- Two acts are compared in two states. Act A pays ₹100 thousand in S1 and ₹20 thousand in S2. Act B pays ₹50 thousand in S1 and ₹70 thousand i…
- A firm has three states with probabilities S1 0.5, S2 0.3 and S3 0.2. Payoffs in ₹ thousand for acts X, Y and Z are: X: 60, 40, 20; Y: 50, 7…
- A firm has the following payoff table (Rs lakh). A1: S1 = 60, S2 = 20; A2: S1 = 40, S2 = 50; A3: S1 = 30, S2 = 35. Under the minimax regret …
- An investor has a utility function U(W) = square root of W, where W is the outcome in Rs lakh. She is offered a venture giving Rs 64 lakh wi…
- Kaveri Traders expects a festival-season order to yield a profit of ₹40,000 with probability 0.3, ₹20,000 with probability 0.5 and a loss of…
- Under a decision with EMV of the best action Rs. 46 lakh and expected payoff under perfect information Rs. 52.5 lakh, what is the EVPI, and …