A Bayesian approach to the Machina paradox

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 - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique
Thijs van de Laar: TU/e - Eindhoven University of Technology [Eindhoven]

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Abstract: Variants of the Ellsberg urn experiments introduced by Machina (Am. Econ. Rev., 99(1), 385-392, 2009) have challenged several prominent models of ambiguity aversion. We show that our Bayesian hierarchical model -originally developed to explain Ellsberg-type preferences -also captures the ambiguity preferences observed in Machina's reflection example. Our findings indicate that ambiguity aversion in both the Ellsberg and Machina paradoxes can be attributed to pessimistic prior beliefs about unobserved outcomes. Moreover, the model predicts an asymmetric pattern of preferences across intermediate payoff levels in the reflection example: ambiguity aversion is stronger when the intermediate payoff lies closer to the worst outcome, while the opposite holds for ambiguity-seeking preferences.

Keywords: Machina Paradox; Ambiguity Aversion; Bayesian Modeling (search for similar items in EconPapers)
Date: 2025-11-24
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