ExpertEasy2 marksMultiple Choice
ACCA · Question 09 · Decision-making Techniques
Section A
HarvestCo must decide which crop to plant: Wheat, Corn, or Soy. The profit depends on the summer weather (Wet, Normal, Dry). A management accountant has created a regret table (opportunity loss table) and is applying the minimax regret rule.
What is the objective of the minimax regret decision rule?
Section A
HarvestCo must decide which crop to plant: Wheat, Corn, or Soy. The profit depends on the summer weather (Wet, Normal, Dry). A management accountant has created a regret table (opportunity loss table) and is applying the minimax regret rule.
What is the objective of the minimax regret decision rule?
Answer options:
A.
To choose the option that maximizes the minimum possible profit.
B.
To choose the option that maximizes the maximum possible profit.
C.
To choose the option that minimizes the maximum possible opportunity loss.
D.
To choose the option with the highest expected value based on probabilities.
How to approach this question
Break down the term 'minimax regret'. It means minimizing the maximum regret (opportunity loss).
Full Answer
C.To choose the option that minimizes the maximum possible opportunity loss.✓ Correct
The minimax regret rule is a decision-making technique under uncertainty. It involves creating a regret table (showing the opportunity loss of not picking the best option for each state of nature), identifying the maximum regret for each decision alternative, and then choosing the alternative with the lowest (minimum) maximum regret.
Common mistakes
Confusing minimax regret with maximin (which looks at actual profits, not opportunity losses).
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