A hierarchical Bayesian framework for the classical patterns of risk preferences

Mateus Joffily () and Thijs van de Laar ()
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Mateus Joffily: CNRS, Université Lumière Lyon 2, Université Jean Monnet Saint-Etienne, emlyon business school, GATE, 69007 Lyon, France
Thijs van de Laar: Department of Electrical Engineering, Eindhoven University of Technology, Eindhoven, The Netherlands

No 2606, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Etienne (GATE Lyon St-Etienne), Université de Lyon

Abstract: Decision-makers exhibit well-defined yet distinct preference patterns under risk: a fourfold pattern when evaluating risky prospects, and a twofold pattern when making choices involving those same prospects. They also display loss aversion by rejecting mixed prospects with equivalent gains and losses, and a framing effect by reversing preferences when equivalent prospects are framed as gains or losses. We show that these phenomena - the fourfold and twofold patterns, loss aversion, and framing effect - arise naturally from a single hierarchical Bayesian framework. Crucially, this framework relies solely on prior beliefs about outcome probabilities and motivated beliefs about outcomes, without requiring probability weighting or reference-dependent value functions.

Keywords: Fourfold Pattern; Probability Weighting; Bayesian Modeling (search for similar items in EconPapers)
JEL-codes: C63 D81 D91 (search for similar items in EconPapers)
Date: 2026
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