Skip to content

ACCA Applied Skills · Performance Management · Dealing with risk and uncertainty in decision-making

A manager chooses the option whose worst possible outcome is the best of all the worst outcomes, ignoring probabilities. Which decision rule is the manager applying?

The manager is applying maximin. This rule identifies the worst payoff for each option and then picks the option whose worst payoff is highest. It reflects a risk-averse, pessimistic attitude and ignores probabilities of the different outcomes.

  1. AMaximax
  2. BMaximinCorrect
  3. CMinimax regret
  4. DExpected value

Explanation

Maximin looks at the minimum payoff for each option and selects the option with the highest of those minimums. Maximax would instead pick the best of the best outcomes, which is optimistic. Minimax regret focuses on opportunity loss, and expected value uses probabilities.

Did you get it right without looking?

One question tells you little. A timed set on Dealing with risk and uncertainty in decision-making shows your real accuracy, how long you take and where you lose marks.

Practise Dealing with risk and uncertainty in decision-makingFree diagnostic mock

More Dealing with risk and uncertainty in decision-making questions