ACCA Applied Skills · Performance Management · Dealing with risk and uncertainty in decision-making
A manager always selects the option with the highest expected value, regardless of the variability of outcomes. How is this manager's attitude to risk best described?
The manager is risk neutral. Choosing purely on the highest expected value means only the weighted average outcome matters, and the variability or spread of possible results is ignored.
- ARisk neutralCorrect
- BRisk averse
- CRisk seeking
- DMaximin
Explanation
A decision-maker who uses expected value alone ignores the spread of outcomes and is therefore risk neutral. Risk averse managers prefer lower variability, risk seekers are attracted by the best possible outcomes, and maximin is a decision rule used by pessimists rather than an attitude description.
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