ACCA Performance Management (F5) Certification Practice Exam

Which type of decision-maker is likely to use the maximin rule?

1. Risk-averse individuals

2. Risk-seeking individuals

3. Indifferent individuals

4. Highly competitive individuals

The correct answer is: Risk-averse individuals

The maximin rule is a decision-making strategy often employed by individuals who are risk-averse. This approach focuses on minimizing the potential losses in the most pessimistic scenario a decision-maker might face. In essence, a risk-averse individual is primarily concerned with safeguarding against the worst possible outcomes. By applying the maximin rule, they choose the alternative that has the best of the worst possible outcomes, ensuring that even in the least favorable situation, their result is maximized relative to other options. This mindset is rooted in a strong preference for avoiding losses rather than chasing gains, which is why risk-averse individuals naturally gravitate towards the maximin rule. In contrast, risk-seeking individuals may embrace strategies that allow for greater potential upside, even if that also includes a chance of significant losses. Indifferent individuals do not typically display a strong preference towards risk in either direction, and highly competitive individuals might prioritize options that enhance their standings relative to others, potentially overlooking the maximin rule altogether. Thus, the maximin rule aligns perfectly with the cautious nature of risk-averse decision-makers, emphasizing their priority of ensuring minimum outcomes rather than maximizing potential gains.