States and Contingencies: How to Understand Savage without Anyone Being Hanged

Models of decision-making under uncertainty gain much of their power from the specification of states so as to resolve all uncertainty. However, this specification can undermine the presumed observability of preferences on which axiomatic theories of decision-making are based. We introduce the notion of a contingency. Contingencies need not resolve all uncertainty, but preferences over functions from contingencies to outcomes are (at least in principle) observable. In sufficiently simple situations, states and contingencies coincide. In more challenging situations, the analyst must choose between sacrificing observability in order to harness the power of states that resolve all uncertainty, or preserving observability by working with contingencies.