Bounded Rationality and Categorization

Learning Frames
Vessela Daskalova and Nicolaas J. Vriend


Journal of Economic Behavior & Organization 191 (2021)
https://doi.org/10.1016/j.jebo.2021.08.020


Players may categorize the strategies available to them. In many games there are
different ways to categorize one’s strategies (different frames) and which ones
players use has implications for the outcomes realized. This paper proposes a model
of agents who learn which frames to use through reinforcement. As a case study we
fit the model to existing experimental data from coordination games. The analysis
shows that the model fits the data well as it matches the key stylized facts. It
suggests a trade-off of using coarser versus finer representations of the strategy set
when it comes to learning.


Categorization and Coordination


Vessela Daskalova and Nicolaas J. Vriend


European Economic Review 129 (2020) 
https://doi.org/10.1016/j.euroecorev.2020.103519


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.