A Bayesian hierarchical model of Ellsberg-type preferences

Mateus Joffily () and Thijs van de Laar ()
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Mateus Joffily: GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne - EM - EMLyon Business School - CNRS - Centre National de la Recherche Scientifique
Thijs van de Laar: Department of Electrical Engineering - TU/e - Eindhoven University of Technology [Eindhoven]

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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)
Date: 2025-06-14
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