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A Bayesian hierarchical model of Ellsberg-type preferences

Author

Listed:
  • 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)

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.

Suggested Citation

  • Mateus Joffily & Thijs van de Laar, 2025. "A Bayesian hierarchical model of Ellsberg-type preferences," Working Papers 2516, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    • Handle: RePEc:gat:wpaper:2516
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    More about this item

    Keywords

    Ellsberg Paradox; Ambiguity Aversion; Bayesian Modeling;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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