IDEAS home Printed from https://ideas.repec.org/p/hhs/hastef/0721.html
   My bibliography  Save this paper

Optimal Categorization

Author

Listed:
  • Mohlin, Erik

    () (Dept. of Economics, Stockholm School of Economics)

Abstract

The importance of categorical reasoning in human cognition is well-established in psychology and cognitive science, and it is generally acknowledged that one of the most important functions of categorization is to facilitate prediction. This paper provides a model of optimal categorization. In the beginning of each period a subject observes a two-dimensional object in one dimension and wants to predict the object's value in the other dimension. The subject partitions the space of objects into categories. She has a data base of objects that were observed in both dimensions in the past. The subject determines what category the new object belongs to on the basis of observation of its first dimension. The average value in the second dimension, of objects in this category in the data base, is used as prediction for the object at hand. At the end of each period the second dimension is observed and the observation is stored in the data base. The main result is that the optimal number of categories is determined by a trade-off between (a) decreasing the size of categories in order to enhance category homogeneity, and (b) increasing the size of categories in order to enhance category sample size.

Suggested Citation

  • Mohlin, Erik, 2009. "Optimal Categorization," SSE/EFI Working Paper Series in Economics and Finance 721, Stockholm School of Economics, revised 30 May 2014.
  • Handle: RePEc:hhs:hastef:0721
    as

    Download full text from publisher

    File URL: http://swopec.hhs.se/hastef/papers/hastef0721.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jehiel, Philippe & Koessler, Frédéric, 2008. "Revisiting games of incomplete information with analogy-based expectations," Games and Economic Behavior, Elsevier, vol. 62(2), pages 533-557, March.
    2. I. Gilboa & A. W. Postlewaite & D. Schmeidler., 2009. "Probability and Uncertainty in Economic Modeling," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 10.
    3. Itzhak Gilboa & David Schmeidler, 2003. "Inductive Inference: An Axiomatic Approach," Econometrica, Econometric Society, vol. 71(1), pages 1-26, January.
    4. Fryer Roland & Jackson Matthew O., 2008. "A Categorical Model of Cognition and Biased Decision Making," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-44, February.
    5. Jehiel, Philippe & Samet, Dov, 2007. "Valuation equilibrium," Theoretical Economics, Econometric Society, vol. 2(2), June.
    6. Jehiel, Philippe, 2005. "Analogy-based expectation equilibrium," Journal of Economic Theory, Elsevier, vol. 123(2), pages 81-104, August.
    7. Mengel, Friederike, 2012. "Learning across games," Games and Economic Behavior, Elsevier, vol. 74(2), pages 601-619.
    8. Punj, Girish & Moon, Junyean, 2002. "Positioning options for achieving brand association: a psychological categorization framework," Journal of Business Research, Elsevier, vol. 55(4), pages 275-283, April.
    9. James Dow, 1991. "Search Decisions with Limited Memory," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 1-14.
    10. Steiner, Jakub & Stewart, Colin, 2008. "Contagion through learning," Theoretical Economics, Econometric Society, vol. 3(4), December.
    11. Itzhak Gilboa & Offer Lieberman & David Schmeidler, 2006. "Empirical Similarity," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 433-444, August.
    12. Joshua Coval & Jakub Jurek & Erik Stafford, 2009. "The Economics of Structured Finance," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 3-25, Winter.
    13. Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2007. "Probabilities in Economic Modeling," PIER Working Paper Archive 07-023, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    14. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    15. Azrieli, Yaron, 2009. "Categorizing others in a large game," Games and Economic Behavior, Elsevier, vol. 67(2), pages 351-362, November.
    16. Basu, Kaushik, 1994. "The Traveler's Dilemma: Paradoxes of Rationality in Game Theory," American Economic Review, American Economic Association, vol. 84(2), pages 391-395, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Natalia Shestakova, 2010. "Pricing Scheme Choice: How Process Affects Outcome," CERGE-EI Working Papers wp411, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    2. Topi Miettinen, 2012. "Paying attention to payoffs in analogy-based learning," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(1), pages 193-222, May.
    3. Ennio Bilancini & Leonardo Boncinelli, 2014. "Persuasion with Reference Cues and Elaboration Costs," Center for Economic Research (RECent) 102, University of Modena and Reggio E., Dept. of Economics "Marco Biagi".
    4. Yuval Heller & Eyal Winter, 2016. "Rule Rationality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57, pages 997-1026, August.
    5. Mengel, Friederike & Sciubba, Emanuela, 2014. "Extrapolation and structural similarity in games," Economics Letters, Elsevier, vol. 125(3), pages 381-385.
    6. Chollete, Loran & Schmeidler, David, 2014. "Demand-Theoretic Approach to Choice of Priors," UiS Working Papers in Economics and Finance 2014/14, University of Stavanger.
    7. Bleile, Jörg, 2016. "Categorization based Belief formations," Center for Mathematical Economics Working Papers 519, Center for Mathematical Economics, Bielefeld University.
    8. Vessela Daskalova & Nicolaas J. Vriend, 2014. "Categorization and Coordination," Working Papers 719, Queen Mary University of London, School of Economics and Finance.

    More about this item

    Keywords

    Categorization; Priors; Prediction; Similarity-Based Reasoning.;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:hastef:0721. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Helena Lundin). General contact details of provider: http://edirc.repec.org/data/erhhsse.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.