Thinking categorically about others: A conjectural equilibrium approach

Yaron Azrieli

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Categorization; Conjectural equilibrium; Large games (search for similar items in EconPapers)
JEL-codes: C72 D81 D84 (search for similar items in EconPapers)
Date: 2007-05-14
New Economics Papers: this item is included in nep-evo and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:3843

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