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CMA Foundation · Fundamentals of Business Economics and Management · Decision-making - Types and Process

A manager facing uncertainty about future demand picks the option whose worst possible outcome is the least bad. Which attitude does this reflect?

This reflects the pessimistic approach, also called maximin. The manager looks at the worst outcome of each alternative and selects the one whose worst outcome is the highest. It is used under uncertainty and differs from the optimistic, expected value and regret criteria.

  1. AOptimistic approach
  2. BPessimistic approachCorrect
  3. CExpected value approach
  4. DRegret approach based on opportunity loss

Explanation

Choosing the alternative with the best of the worst outcomes is the maximin rule, a pessimistic (conservative) attitude. The optimistic approach chooses the best of the best outcomes. Regret approach minimises the maximum opportunity loss, which is a different calculation.

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