The Benefits of Coarse Preferences

Halpern, Joe and Heller, Yuval and Winter, Eyal (2022): The Benefits of Coarse Preferences.

Abstract

We study the strategic advantages of coarsening one’s utility by clustering nearby payoffs together (i.e., classifying them the same way). Our solution concept, coarse-utility equilibrium (CUE) requires that (1) each player maximizes her coarse utility, given the opponent’s strategy, and (2) the classifications form best replies to one another. We characterize CUEs in various games. In particular, we show that there is a qualitative difference between CUEs in which only one of the players clusters payoffs, and those in which all players cluster their payoffs, and that the latter type induce players to treat co-players better than in Nash equilibria in the large class of games with monotone externalities.

• Item Type: MPRA Paper
• Language: English
• Keywords: Categorization, language, indirect evolutionary approach, monotone externalities, strategic complements, strategic substitutes.
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C73 - Stochastic and Dynamic Games ; Evolutionary Games ; Repeated Games; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness

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