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PM Chapter 10 Questions Risk and Uncertainty
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Hi John
From one of your comment here said that ” If a decision is repeated then on average the expected value will be the actual return”
Could you please give an example to help me understand this statement?
Thank you so much in advance!!!!
Suppose there is a 50% chance of an outcome of 100 and a 50% chance of an outcome of 200.
If you only do it once then you will get either 100 or 200.
However if you keep repeating then half of the times you will get 100 and half of the times you will get 200. On average it will be 150 each time.
But the expected value would still be; (100*0.5) + (200*0.5) = 50+100=150
The ev is 150 when it is not possible for it to be 150 but only 100 or 200
The comment does not state that the actual return with be the expected value, but that it will on average be the expected value.
Why only two questions
Our tests are only meant to be quick checks after each chapter.
As we state throughout our website it is vital that you buy a Revision Kit from one of the ACCA approved publishers. They are full of past exam and other exam-standard questions in the various formats that are in the exam.
Sir I have a query that I desperately need helps with. There’s a question on minimax regret in the textbook.
Now base on the video u posted I understand that the table is a table of regrets
And following your teachings I was able to work out the regret table
However I don’t understand the last scenario
Why is the 105 under D is a positive
If I choose D with a loss of 20 over a profit of 85 isn’t that double loss
Shouldn’t the 105 be a negative or a total of losses
Please refer to tx book question and answer below
A company has three projects to select from
Projects
D E F
Scenarios
1. 100 80 60
2. 90 120 85
3. (20) 10 85
Answer
Pay off table
Projects
D E F
Scenarios
1. 0 20 40
2. 30 0 35
3. 105 75 0
Ignore that question….I miss read the answer.
Sir kindly explain why the expected value is 10.
Which question are you asking about?
Dear John,
No 2 is correct for the following question,right?
If not true, please expain to me why.Thank you so much.
Which of the following statements is/are correct?
1. Risk-averse decision makers will use the expected value approach to decision making.
2. In a one-off decision, the expected value is a value that can not actually occur.
Wrong 馃檪
Although the expected value will not usually actually occur, it can occur.
(For example, suppose there are three possible outcomes: 10, 15 and 20.
Suppose the probability of each of them occurring is 1/3.
Then the expected value is 15, which is an outcome that can actually occur.)
Again, it is unusual for it to happen, but it is wrong to say that “it can not actually occur”, because it can 馃檪
Q 1, I agree with you, the expected values can actually occur. But in the lecture for limitations you mentioned expected values will only work for repeat occurrences. The options for Q1, says in a one off decision and thats why I thought option 2 was correct. Please clarify John? Many thanks in advance.
If a decision is repeated, then on average the expected value will be the actual return.
For a one-off decision the outcome will be just one of the possible outcomes. Although it is unlikely that one of the outcomes will equal the expected value, it can happen (as in my illustration in my previous reply).