ACCA Performance Management (F5) Certification Practice Exam

In decision theory, what outcome does the maximin rule seek to ensure?

1. The highest overall profit

2. The lowest possible risk

3. The highest minimum outcome achievable

4. The best average performance

The correct answer is: The highest minimum outcome achievable

The maximin rule is a strategy used in decision theory, particularly in situations where outcomes are uncertain and the decision-maker wishes to focus on minimizing potential losses. By employing the maximin rule, a decision-maker evaluates the worst possible outcomes of each option and selects the option that has the best (i.e., highest) worst-case scenario. This approach is particularly useful in scenarios where there is significant uncertainty and risk, as it emphasizes securing the most favorable outcome in the least favorable circumstances. Thus, the aim is to ensure that the minimum outcome achievable is as high as possible, which aligns perfectly with the concept of the maximin rule. While other approaches in decision-making might focus on maximizing average performance, minimizing risk, or selecting options based solely on potential profits, the maximin rule specifically targets the highest possible minimum outcome, thereby safeguarding against undesirable results.