Exhibit 14.5 The Following Questions Are Based on the Information Below

question 73

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%.
-Which decision rule pessimistically assumes that nature will always be "against us" regardless of what decision we make?

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

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