Exhibit 14.5 The Following Questions Are Based on the Information Below

question 100

Multiple Choice

Exhibit 14.5
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 40% and an expanding economy at 60%.
-The decision rule which selects the alternative associated with the smallest maximum opportunity loss is the

• A) maximax decision rule.
• B) maximin decision rule.
• C) minimax regret decision rule.
• D) minimin decision rule.

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Definitions:

Parallel Conversion

A method of implementing a new system where the old and new systems run simultaneously for a period of time to ensure the new system works correctly.

Old Systems

Outdated or legacy technology and processes that are still in use within an organization.

End-user Development

The practice of allowing end-users, who are not professional developers, to create or modify software applications.

IT Department

A division within an organization tasked with maintaining and implementing technology solutions.