We want to discuss making several decisions over time.
Let $A^{1}$ be a set of actions and
$\mathcal{O}^1 = \set{O^{1}_a}$ a family of
outcome sets.
Define $H^1 = \Set*{(a, o)}{a \in A^1, o \in
O^{1}_a}$.
Let $\mathcal{A} ^2 = \set{A^{2}_{h^1}}_{h^1 \in
H^1}$ be a family of action sets.
Define
\[
\tilde{H}^{2} = \Set*{(a_1, o_1, a_2)}{(a_1, o_1) \in H^1, a_2
\in A^{2}_{a_1o_1}}.
\] \[
H^2 = \Set{(a_1, o_1, a_2, o_2)}{h = (a_1, o_1, a_2) \in
\tilde{H}^2, o_2 \in O_{h}}.
\]
In general, let $\mathcal{A} ^{i} =
\set{A^i_{h}}_{h \in H^{i-1}}$ be a family of
action sets, define $\tilde{H}^i$ by
\[
\Set*{(a_1, \dots , o_{i-1}, a_i)}{h = (a_1, \dots , o_{i-1})
\in H^{i-1}, a_i \in A^i_{h}}.
\] \[
\Set*{(a_1, \dots , a_i, o_i)}{h = (a_1, \dots , a_i) \in
\tilde{H}^{i}, o_i \in O^i_{h}}.
\]
Discussing $n$-stage decision problems is complicated, as the notation indicates. How can we simplify thinking about them?
One simplification occurs when the outcome sets at stage $i$ do not depend on the action taken, or on the history of actions. In this case, we may discuss outcome sets $O^i$ for $i = 1, \dots , n$.
Another simplification occurs when the decisions to be made at each stage do not depend on the action taken or on the history of actions. In this case, we may discuss action sets $A^i$ for $i = 1, \dots , n$.
An even greater simplification occurs when the outcome and actions sets do not depend on the stage $i$. In this case, we speak of the action set and the outcome set.
Often we can summarize the history $H^i$ with a set $\mathcal{X} _i$. In this case, we speak of the set of states $S_i$ for $i = 1, \dots , n$. In this case, we can associate the history $H^1$ with an element of $S^1$. We can associate the history $H^2$ with an element of $S^2$. And so on.
Naturally, the current action affects the future states, but not the current or past states, since the state is a “summary” of the history, of the “past”.3
In this way, the state is a “link” between the “past” and the “future.” The idea is that the current action affects the future state, but not current or past states.