Schumpeterian Innovation in Modelling Decisions, Games, and Economic Behaviour

Von Neumann’s standard paradigm of a game in extensive form and Kolmogorov’s standard model of a stochastic process both rely on constructing a fixed state space large enough to include all possible future eventualities. This allows a typical singleperson decision problem to be represented as a decision tree. Yet not all eventualities can be foreseen. Also, any practical decision model must limit the state space rather severely. In this way the standard paradigm excludes not only Schumpeter’s ideas regarding entrepreneurship, innovation and development, but also Shackle’s «unexpected events». This paper proposes an alternative approach using ‘decision jungles’ with an evolving state space.