ExpertEasy2 marksMultiple Choice
ACCA · Question 9 · Risk and Uncertainty
Section A
PetroDrill is deciding whether to invest in one of three oil fields: Alpha, Beta, or Gamma. The management team is highly risk-averse and pessimistic, believing that the worst possible outcome is likely to occur regardless of their choice.
Which decision-making rule should PetroDrill's management apply?
Section A
PetroDrill is deciding whether to invest in one of three oil fields: Alpha, Beta, or Gamma. The management team is highly risk-averse and pessimistic, believing that the worst possible outcome is likely to occur regardless of their choice.
Which decision-making rule should PetroDrill's management apply?
Answer options:
A.
Maximax
B.
Maximin
C.
Minimax Regret
D.
Expected Value
How to approach this question
Match the psychological profile (pessimistic, risk-averse) to the decision rule. They want to ensure the worst-case scenario is as good as possible.
Full Answer
B.Maximin✓ Correct
The maximin rule is used by pessimistic decision-makers. It involves identifying the worst possible outcome (the minimum) for each alternative and then choosing the alternative that offers the highest (maximum) of these worst outcomes. It ensures the best possible result if the worst happens.
Common mistakes
Selecting Minimax Regret, which is about minimizing the pain of making the wrong choice in hindsight, rather than strictly protecting against the worst absolute outcome.
Practice the full ACCA PM — Performance Management Practice Exam 1
32 questions · hints · full answers · grading
More questions from this exam
Q1Section A
OmniRetail, a global supermarket chain, is implementing a new Executive Information Sy...EasyQ2Section A
CloudTech Solutions, a SaaS provider, is migrating its core financial performance data...MediumQ3Section A
ArtisanWood crafts bespoke furniture. The company is adopting Activity-Based Costing (...EasyQ4Section A
SiliconForge manufactures semiconductor chips. The factory has a bottleneck process. T...MediumQ5Section A
ChemCorp produces industrial solvents. Recently, the company was fined $50,000 by the ...Easy