ExpertEasy2 marksMultiple Choice
ACCA · Question 23 · Decision-making techniques
Section B - Case 2: CyberShield
CyberShield is a tech startup developing a new B2B SaaS (Software as a Service) platform for cybersecurity.
The founders are deciding between three marketing strategies (Aggressive, Moderate, Conservative). The payoff matrix (profits in $000s) depends on competitor reaction:
Strategy | Weak Reaction | Strong Reaction
Aggressive | 500 | -100
Moderate | 300 | 100
Conservative | 150 | 120
If the founders are extremely risk-averse, which strategy will they choose using the Maximin rule?
Section B - Case 2: CyberShield
CyberShield is a tech startup developing a new B2B SaaS (Software as a Service) platform for cybersecurity.
The founders are deciding between three marketing strategies (Aggressive, Moderate, Conservative). The payoff matrix (profits in $000s) depends on competitor reaction:
Strategy | Weak Reaction | Strong Reaction
Aggressive | 500 | -100
Moderate | 300 | 100
Conservative | 150 | 120
If the founders are extremely risk-averse, which strategy will they choose using the Maximin rule?
Answer options:
A.
Aggressive
B.
Moderate
C.
Conservative
D.
Do nothing
How to approach this question
1. Identify the worst possible outcome (minimum) for each strategy. 2. Choose the strategy that has the highest (maximum) of these minimum values.
Full Answer
C.Conservative✓ Correct
The Maximin rule is for risk-averse decision-makers. It involves looking at the worst possible outcome for each option and selecting the one that is the 'least bad' (the maximum of the minimums).
Worst outcomes:
Aggressive: -100
Moderate: 100
Conservative: 120
The maximum of these minimums is 120, so the Conservative strategy is chosen.
Common mistakes
Choosing Aggressive (which is Maximax) or Moderate (which might be chosen under Minimax Regret).
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