The benefits of coarse preferences

We study the strategic benefits of coarsening one's utility by clustering payoffs together. 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, in the latter type of CUE, players treat other players better than they do in Nash equilibria in games with monotone externalities.