Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2025:7: Categorization in Games: A Bias-Variance Perspective

Philippe Jehiel () and Erik Mohlin ()
Additional contact information
Philippe Jehiel: Paris School of Economics and University College London, Postal: PSE, 48 boulevard Jourdan, 75014 Paris, France
Erik Mohlin: Department of Economics, Lund University, Postal: School of Economics and Management, Box 7080, S-220 07 Lund, Sweden

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

JEL-codes: C70; C73; D82; D83; D91

Language: English

66 pages, September 9, 2025

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