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?
The decisions under risk are (1) maximization of expected value, (2) mean-variance analysis, and (3) coefficient of variation analysis. The first two methods involve measuring the riskiness of probability distribution, variance and standard deviation of absolute risk, whereas the coefficient of variation measures risk relative to the expected value of the distribution and allow the manager to make decisions based on relative risk instead of absolute risk. There is no rule that a manager would be forced to follow. There are no rules that specify the method of measuring the risk of a project and ultimately it’s the manager’s expected utility of risk. If a manager behave according to expected utility theory, the decisions are made to maximize the manager’s expected utility of profits.
IF the question stated making decisions under conditions of uncertainty, the reply would have been maximin rule – decisions made that identifies the worst outcome for each decision and choosing the decision with the maximum worst payoff (Thomas & Maurice, 2013, p. 647).

2. “A portfolio manager needs to pick winners—assets or securities with high expected returns and low risk.” What is wrong with this statement?
This statement should read “A portfolio manager should choose a winning portfolio that matches the level of risk and provides the expected return of the investor.” A diversified portfolio carries a lower risk than individual stocks and should be the matrix for a successful investment, investing in securities with high expected returns involves a high level of risk.
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