Question 1

**Section A**

The management of DeepSea Drilling is evaluating three potential offshore sites. The CEO is highly risk-averse and wants to ensure the company avoids catastrophic losses, regardless of the potential upside.

Which decision-making rule under uncertainty should the CEO use?

Accepted Answer

Identify the risk profile of the decision-maker. Risk-averse = Maximin.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Selecting Minimax Regret, which focuses on minimizing hindsight regret rather than strictly avoiding the worst absolute financial outcome.

Section A

The management of DeepSea Drilling is evaluating three potential offshore sites. The CEO is highly risk-averse and wants to ensure the company avoids catastrophic losses, regardless of the potential upside.

Which decision-making rule under uncertainty should the CEO use?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA PM — Performance Management Practice Exam 6

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