Categorization and coordination

Vessela Daskalova () and Nicolaas Vriend

European Economic Review, 2020, vol. 129, issue C

Abstract: This paper considers the use of categories to make predictions. It presents a framework to examine when decision makers may be better off using fewer rather than more categories, even without exogenous costs of using more. We study three cases: individual prediction, coordination of predictions, and the convex combination of the two. The analysis focuses on how the attempt to coordinate predictions with others affects incentives for coarse categorization in different environments. We show that while a coordination motive does not provide incentives for coarse categorization in deterministic environments, it could provide such incentives in stochastic environments.

Keywords: Categorization; Coordination; Prediction; Bounded rationality; Behavioural; Heuristics (search for similar items in EconPapers)
JEL-codes: C72 D01 D80 D90 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Categorization and Coordination (2014)
Working Paper: Categorization and Coordination (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:129:y:2020:i:c:s0014292120301501

DOI: 10.1016/j.euroecorev.2020.103519

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