Journal of Risk and Uncertainty

, Volume 13, Issue 1, pp 5–17

Options traders exhibit subadditive decision weights

  • Craig R. Fox
  • Brett A. Rogers
  • Amos Tversky
Article

DOI: 10.1007/BF00055335

Cite this article as:
Fox, C.R., Rogers, B.A. & Tversky, A. J Risk Uncertainty (1996) 13: 5. doi:10.1007/BF00055335

Abstract

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.

Key words

risk uncertainty decision weights subadditivity 

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Copyright information

© Kluwer Academic Publishers 1996

Authors and Affiliations

  • Craig R. Fox
    • 1
  • Brett A. Rogers
    • 2
  • Amos Tversky
    • 3
  1. 1.Fuqua School of BusinessDuke UniversityDurham
  2. 2.Department of PsychologyStanford UniversityStanford
  3. 3.Department of PsychologyStanford UniversityStanford

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