Skip to content

CMA Intermediate · Management Accounting · Decision Theory

Under the Laplace (equal probability) criterion, which act is chosen from these payoffs (Rs lakh) across four states? P: 20, 30, 40, 50; Q: 10, 60, 30, 50; R: 35, 35, 35, 35.

Act Q is chosen with an average payoff of Rs 37.5 lakh. The Laplace criterion treats all states as equally likely, so each act's payoffs are averaged: P and R both give 35, while Q gives 150 divided by 4, equal to 37.5.

  1. AP with expected value 35
  2. BQ with expected value 37.5Correct
  3. CR with expected value 35
  4. DP with expected value 40

Explanation

Each state gets probability 0.25. P = 140/4 = 35. Q = (10+60+30+50)/4 = 150/4 = 37.5. R = 140/4 = 35. Q has the highest average, so it is chosen.

Did you get it right without looking?

One question tells you little. A timed set on Decision Theory shows your real accuracy, how long you take and where you lose marks.

Practise Decision TheoryFree diagnostic mock

More Decision Theory questions