Constructive Decision Theory

TL;DR

This paper introduces a novel decision theory framework where primitive choices are syntactic programs, allowing for subjective state and outcome spaces and capturing complex behaviors like framing effects.

Contribution

It provides a representation theorem linking preference relations over syntactic programs to subjective states, outcomes, probabilities, and utilities, without requiring explicit state or outcome spaces.

Findings

Model can represent decision makers with framing effects

Allows testing for subjective expected utility without explicit states

Captures complex decision behaviors in a syntactic framework

Abstract

In most contemporary approaches to decision making, a decision problem is described by a sets of states and set of outcomes, and a rich set of acts, which are functions from states to outcomes over which the decision maker (DM) has preferences. Most interesting decision problems, however, do not come with a state space and an outcome space. Indeed, in complex problems it is often far from clear what the state and outcome spaces would be. We present an alternative foundation for decision making, in which the primitive objects of choice are syntactic programs. A representation theorem is proved in the spirit of standard representation theorems, showing that if the DM's preference relation on objects of choice satisfies appropriate axioms, then there exist a set S of states, a set O of outcomes, a way of interpreting the objects of choice as functions from S to O, a probability on S, and a utility function on O, such that the DM prefers choice a to choice b if and only if the expected utility of a is higher than that of b. Thus, the state space and outcome space are subjective, just like the probability and utility; they are not part of the description of the problem. In principle, a modeler can test for SEU behavior without having access to states or outcomes. We illustrate the power of our approach by showing that it can capture decision makers who are subject to framing effects.