Options Traders Exhibit Subadditive Decision Weights

Professional options traders priced risky prospects as well as uncertain prospects whose outcomes depended on future values of various stocks. The prices of the risky prospects coincided with their expected value, but the prices of the uncertain prospects violated expected utility theory. An event h...

Full description

Saved in:
Bibliographic Details
Published inJournal of risk and uncertainty Vol. 13; no. 1; pp. 5 - 17
Main Authors FOX, CRAIG R., ROGERS, BRETT A., TVERSKY, AMOS
Format Journal Article
LanguageEnglish
Published Kluwer Academic Publishers 01.07.1996
Subjects
Decision making
Economic behaviour
Economic uncertainty
Expected utility
Expected values
Options on stocks
Prospect theory
Risk
Selling price
Staffing
Statistical median
Stock exchange
Stock exchanges
Uncertainty
Utility models
Weighting functions
Online AccessGet full text

Cover

More Information
Summary:Professional options traders priced risky prospects as well as uncertain prospects whose outcomes depended on future values of various stocks. The prices of the risky prospects coincided with their expected value, but the prices of the uncertain prospects violated expected utility theory. An event had greater impact on prices when it turned an impossibility into a possibility or a possibility into a certainty than when it merely made a possibility more or less likely, as predicted by prospect theory. This phenomenon is attributed to the subadditivity of judged probabilities.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0895-5646
1573-0476
DOI:10.1007/BF00055335