1. Suppose your
company’s method of making decisions under risk is “making thebest out of the worst...

Question

1. Suppose your
company’s method of making decisions under risk is “making thebest out of the worst possible
outcome.”What rule would you be forced
tofollow?
2.“A portfolio manager needs to pick
winners—assets or securities with high
expected returns and low risk.”
What is wrong with this statement?
3.Do you favor anti-gouging laws as a means of
protecting consumers from high prices following natural disasters, such as
Hurricane Katrina in New Orleans?If so,
why?If not, why not?
4.How does a price ceiling undermine the
rationing function ofmarket-determined
prices?How could rationing coupons
insure that consumerswith the highest values
get the limited amount of a good supplied when government prices ceilings
create shortages?

Robert · Accepted Answer

1. Suppose your company’s method of making decisions under risk is “making the best out of the 
worst possible outcome.” What rule would you be forced to follow? 
Answer: 
The company is using “maxmin” rule to take decisions. 
2. “A portfolio manager needs to pick winners—assets or securities with high expected returns 
and low risk.” What is wrong with this statement? 
Answer: 
Expected return and risk are directly related i.e. a portfolio having high risk will have high 
expected return and a portfolio with low risk will have low expected return. So for a portfolio 
manager, it is difficult to pick assets or securities with high expected returns and low risk.
3.

1. Suppose your company’s method of making decisions under risk is “making thebest out of the worst possible outcome.”What rule would you be forced tofollow? 2.“A portfolio manager needs to...

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