IAI Actuarial Core Principles · Business Management · Decision-making process, attitude to risk and competition
A Delhi firm faces three strategies and two market states. Payoffs (Rs crore): A: 50 in boom, 10 in slump; B: 35 in boom, 25 in slump; C: 20 in boom, 22 in slump. Using the minimax regret criterion, which strategy is chosen?
This item is flawed.
- AA, maximum regret 15
- BB, maximum regret 15Correct
- CB, maximum regret 25
- DC, maximum regret 30
- C, maximum regret 3
Explanation
Best boom payoff is 50 and best slump payoff is 25. Regrets: A: 0 and 15, max 15. B: 15 and 0, max 15. C: 30 and 3, max 30. A and B tie at 15 under this calculation, so the key is ambiguous.
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