Decomposable Choice Under Uncertainty
Savage motivated his Sure Thing Principle by arguing that, whenever an act would be preferred if an event obtains and preferred if that event did not obtain, then it should be preferred overall. The idea that it should be possible to decompose and recompose decision problems in this way has normative appeal. We show, however, that it does not require the full separability across events implicit in Savage’s axiom. We formulate a weaker axiom that suﬀices for decomposability, and show that this implies an implicit additive representation. Our decomposability property makes local necessary conditions for optimality, globally suﬀicient. Thus, it is useful in computing optimal acts. It also enables Nash behavior in games of incomplete information to be decentralized to the agent-normal form. None of these results rely on probabilistic sophistication; indeed, our axiom is consistent with the Ellsberg paradox. If we assume probabilistic sophistication, however, then the axiom holds if and only if the agent’s induced preferences over lotteries satisfy betweenness.
Grant, Simon; Kajii, Atsushi; and Polak, Ben, "Decomposable Choice Under Uncertainty" (1999). Cowles Foundation Discussion Papers. 1455.