# Management -Critical Thinking

Question 1

What is the rationale behind the minimax regret rule? What are some less formal and precise methods of dealing with uncertainty? When are these useful?

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Â Question 2

How does the adverse selection problem arise in the credit- card market? How do credit- card companies reduce the adverse selection problem that they face? To what complaint does this give rise?

Question 3

An individual has to choose between investment A and investment B. The individual estimates that the income and probability of the income from each investment are as given in the following table: Investment A Investment B Income Probability Income Probability 4000 0.2 4000 0.3 5000 0.3 6000 0.4 6000 0.3 8000 0.3 7000 0.2 (a) Using Excelâ€™s statistical tools, calculate the standard deviation of the distribution of each investment. (b) Which of the two investments is more risky? (c) Which investment should the individual choose? NOTE: Use table 14-4 as reference

Question 4

An individual is considering two investment projects. Project A will return a zero profit if conditions are poor, a profit of \$ 4 if conditions are good, and a profit of \$ 8 if conditions are excellent. Project B will return a profit of \$ 2 if conditions are poor, a profit of \$ 3 if conditions are good, and a profit of \$ 4 if conditions are excellent. The probability distribution of conditions is as follows: