Essays on coarse cognition, competition, and cooperation

Abstract

This dissertation is divided in three self-contained and single-authored chapters. We analyze, in three different theoretical models, the role of coarse cognition, also defined as categorical rationality, and its consequences on agents' behavior and incentives. In the first and the second chapter, we analyze a model of competition between cognitively limited agents (or firms). Specifically, in the first chapter we investigate the consequences of competition between agents that have different abilities to recognize the states of the world. In the second one, we provide necessary conditions for agents to cooperate, either tacitly or explicitly. The third chapter presents a cooperation model where agents are compelled to redefine their communication in order to meet the cognitive limitations of the partner. As a general result, we find that coarse cognition has deep consequences on agents' ability to understand the situations they face, affecting their ability to implement precise strategies, that are optimal given agents' information but suboptimal with respect to the true state of the world.