Higher-Order Decision Theory

TL;DR

This paper introduces a higher-order decision theory framework that models goals as functions dependent on actions and processes, extending classical utility maximisation to incorporate context-dependent preferences.

Contribution

It proposes a novel higher-order function approach to decision theory, generalising utility maximisation to include context-dependent goals and processes.

Findings

Unified representation of classical utility maximisation and other economic extensions

Framework accommodates context-dependent and process-dependent goals

Generalises outcome-based preferences to a broader class of decision models

Abstract

Classical decision theory models behaviour in terms of utility maximisation where utilities represent rational preference relations over outcomes. However, empirical evidence and theoretical considerations suggest that we need to go beyond this framework. We propose to represent goals by higher-order functions or operators that take other functions as arguments where the max and argmax operators are special cases. Our higher-order functions take a context function as their argument where a context represents a process from actions to outcomes. By that we can define goals being dependent on the actions and the process in addition to outcomes only. This formulation generalises outcome based preferences to context-dependent goals. We show how to uniformly represent within our higher-order framework classical utility maximisation but also various other extensions that have been debated in economics.