Decision-making techniques — ACCA Practice Question 15

How to approach this question

Recall the definition of minimax regret. 'Regret' is the opportunity loss of not picking the best option for a given state of nature.

Full Answer

D.They are concerned with making the wrong decision and want to minimize the maximum opportunity loss.✓ Correct

The minimax regret rule aims to minimize the maximum regret (opportunity loss) that could occur from making a decision. It reflects a cautious approach where the decision-maker is concerned about the competitive disadvantage or 'regret' of making the wrong choice in hindsight.

Common mistakes

Confusing minimax regret with maximin (which focuses on worst-case absolute outcomes, not opportunity losses).

Section A

A manager is deciding between three mutually exclusive projects (A, B, and C). The outcomes depend on the state of the economy. The manager decides to use the 'minimax regret' rule.

What is the underlying attitude to risk of a manager who uses the minimax regret rule?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA PM — Performance Management Practice Exam 2

More questions from this exam

Section A A manager is deciding between three mutually exclusive projects (A, B, and C). The outcomes depend on the state of the economy. The manager decides to use the 'minimax regret' rule. What is the underlying attitude to risk of a manager who uses the minimax regret rule?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA PM — Performance Management Practice Exam 2

More questions from this exam

Section A

A manager is deciding between three mutually exclusive projects (A, B, and C). The outcomes depend on the state of the economy. The manager decides to use the 'minimax regret' rule.

What is the underlying attitude to risk of a manager who uses the minimax regret rule?