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Thinking categorically about others: A conjectural equilibrium approach

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  • Azrieli, Yaron

Abstract

Inspired by the social psychology literature, we study the implications of categorical thinking on decision making in the context of a large normal form game. Every agent has a categorization (partition) of her opponents and can only observe the average behavior in each category. A strategy profile is a Conjectural Categorical Equilibrium (CCE) with respect to a given categorization profile if every player's strategy is a best response to some consistent conjecture about the strategies of her opponents. We show that, for a wide family of games and for a particular categorization profile, every CCE becomes almost Nash as the number of players grows. An equivalence of CCE and Nash equilibrium is achieved in the settings of a non-atomic game. This highlights the advantage of categorization as a simplifying mechanism in complex environments. With much less information in their hands agents behave as if they see the full picture. Some properties of CCE when players categorize `non-optimally' are also considered.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3843.

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Date of creation: 14 May 2007
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Handle: RePEc:pra:mprapa:3843

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Keywords: Categorization; Conjectural equilibrium; Large games;

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  1. M Ali Khan & Yeneng Sun, 2002. "Non-Cooperative Games with Many Players," Economics Working Paper Archive 482, The Johns Hopkins University,Department of Economics.
  2. Rubinstein Ariel & Wolinsky Asher, 1994. "Rationalizable Conjectural Equilibrium: Between Nash and Rationalizability," Games and Economic Behavior, Elsevier, vol. 6(2), pages 299-311, March.
  3. Jehiel, Philippe, 2005. "Analogy-based expectation equilibrium," Journal of Economic Theory, Elsevier, vol. 123(2), pages 81-104, August.
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  11. Pearce, David G, 1984. "Rationalizable Strategic Behavior and the Problem of Perfection," Econometrica, Econometric Society, vol. 52(4), pages 1029-50, July.
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Cited by:
  1. Azrieli, Yaron, 2007. "Categorization and correlation in a random-matching game," MPRA Paper 5475, University Library of Munich, Germany.

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