CMA Intermediate · Management Accounting · Decision Theory
A decision maker uses the Hurwicz criterion with a coefficient of optimism of 0.6. Best and worst payoffs (₹ lakh) are: A = 90 and 10; B = 70 and 30; C = 80 and 20; D = 60 and 40. What is the highest Hurwicz value?
The highest Hurwicz value is ₹58 lakh, for A. Each action is valued as 0.6 times its best payoff plus 0.4 times its worst. A gives 54 + 4 = 58, which beats B 54, C 56 and D 52.
- A₹58 lakhCorrect
- B₹42 lakh
- C₹56 lakh
- D₹54 lakh
Explanation
Hurwicz value = 0.6 × best + 0.4 × worst. A = 54 + 4 = 58; B = 42 + 12 = 54; C = 48 + 8 = 56; D = 36 + 16 = 52. The highest is 58 for A. Reversing the weights would give 42 for A, which is wrong.
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
- Sundaram Foods can choose one of three acts. Demand is High with probability 0.4 and Low with probability 0.6. Payoffs (High, Low) are: Act …
- In a decision tree for Kaveri Textiles, a decision node has two branches. Branch A has an EMV of Rs 18 lakh before cost and needs an investm…
- 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…
- 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 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: …
- 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…