Categorization in Games: A Bias-Variance Perspective

Philippe Jehiel () and Erik Mohlin ()
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Philippe Jehiel: Paris School of Economics and University College London, Postal: PSE, 48 boulevard Jourdan, 75014 Paris, France, https://philippe-jehiel.enpc.fr/
Erik Mohlin: Department of Economics, Lund University, Postal: School of Economics and Management, Box 7080, S-220 07 Lund, Sweden, https://sites.google.com/site/karlerikmohlin/

No 2025:7, Working Papers from Lund University, Department of Economics

Abstract: We develop a framework for categorization in games, applicable both to multi-stage games of complete information and static games of incomplete information. Players use categories to form coarse beliefs about their opponents' behavior. Players best-respond given these beliefs, as in analogy-based expectations equilibria. Categories are related to strategies via the requirements that categories contain a sufficient amount of observations and exhibit sufficient within-category similarity, in line with the bias-variance trade-off. We apply our framework to classic games including the chainstore game and adverse selection games, thereby suggesting novel predictions for these applications.

Keywords: Bounded rationality; Categorization; Bias-variance trade-off; Adverse selection; Chainstore parado (search for similar items in EconPapers)
JEL-codes: C70 C73 D82 D83 D91 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2025-09-09
New Economics Papers: this item is included in nep-gth and nep-mic
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