State space refers to the set of all possible states in which a system can exist, often represented as a multi-dimensional space where each dimension corresponds to a variable that defines the state. Understanding state space is crucial for analyzing decision-making processes, as it provides a framework to evaluate potential outcomes based on different actions taken within the system. In various contexts, such as optimal control problems and stochastic modeling, the concept of state space enables economists to systematically analyze how decisions evolve over time under uncertainty.
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