A Bayesian hierarchical model of Ellsberg-type 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 2516, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: We consider a Bayesian hierarchical model of Ellsberg-type preferences based on conditional subjective expected utility. In our model, optimism and pessimism emanate from motivated prior beliefs about unobserved outcomes. This implies that optimism and pessimism can only propagate along the structure of the hierarchical model when the probability of outcomes is unknown (ambiguity) rather than known (risk). We show that the prevailing preferences observed in Ellsberg (1961)'s two-urn experiment and Jabarian and Lazarus (2023)'s two-ball experiment are reproduced by our model when motivated priors are pessimistic.

Keywords: Ellsberg Paradox; Ambiguity Aversion; Bayesian Modeling (search for similar items in EconPapers)
JEL-codes: C63 D81 D91 (search for similar items in EconPapers)
Date: 2025
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