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CMA Intermediate · Management Accounting · Decision Theory

A firm has four strategies and three possible market states with no probabilities known. Payoffs (₹ lakh) for states S1, S2, S3: A = 40, 25, 10; B = 30, 28, 20; C = 50, 15, 5; D = 35, 22, 15. Under the maximin criterion, which strategy is chosen?

Strategy B is chosen. Maximin takes the worst payoff of each strategy (10, 20, 5, 15) and selects the strategy with the highest of these, which is 20 for B. It suits a pessimistic decision maker.

  1. AA
  2. BBCorrect
  3. CC
  4. DD

Explanation

Row minimums are A = 10, B = 20, C = 5, D = 15. The maximin rule picks the largest of these minimums, which is 20 for B. Strategy C is the maximax choice (best payoff 50), not the maximin choice.

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