The Benefits of Coarse Preferences

TL;DR

This paper introduces the concept of coarse-utility equilibrium (CUE), analyzing how players benefit from clustering payoffs and how this affects strategic interactions and outcomes in various games.

Contribution

It formalizes the CUE concept, characterizes its properties in different game settings, and highlights the impact of payoff clustering on player behavior and equilibrium outcomes.

Findings

CUEs differ qualitatively depending on whether one or all players cluster payoffs.

Players tend to treat co-players better under CUEs than in Nash equilibria.

Clustering payoffs can lead to more cooperative behavior in games with externalities.

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.