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Risk and Uncertainty

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Risk and Uncertainty

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • Author
    Posts
  • September 28, 2021 at 3:13 pm #636642
    Natasha1996
    Member
    • Topics: 34
    • Replies: 22
    • ☆☆

    Maximax is Risk Seekers
    Maximin is Risk Avoiders
    Minimax is Risk Avoiders
    Expected Value is Risk Neutral

    So can we say that all the approaches Maximax; Maximin; Minimax; Expected Values are used to deal with uncertainty where the possible outcome is unknown and probabilities cannot be given but you said in your lecture that EV is used when the outcome is uncertain but with the probabilities are usually given in the expected value! I am confused here.

    Is that all true?

    September 28, 2021 at 5:38 pm #636653
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51563
    • ☆☆☆☆☆

    The expected value approach is only possible when the probabilities of the various outcomes are known.

    If the probabilities are not known, then it would be one of the other approaches depending on the decision makers attitude to risk.

    Otherwise what you have written is correct, but never write in the exam that “maximax is risk seekers” because that does not make sense. What you should write in the exam, is that “risk seekers would use a maximax approach” (and the same for the others 🙂 )

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