The behavioral relevance of mental accounting for the pricing of financial options
نویسنده
چکیده
The paper reports an experiment on the pricing of financial options. Arbitrage-free option pricing is tested against three hypotheses based on mental accounting. The data show that, even with considerable experience, unexploited arbitrage opportunities persist. Subjects do not seem to make the connections between the different investment possibilities, as essential for arbitrage-free pricing (AFP). Instead, they act as if they associate the risky assets to the same mental account, while the bond is treated separately. This corresponds to the construction of a two-layer portfolio (of a risky and a safe layer) in the behavioral portfolio theory of Shefrin and Statman [J. Fin. Quant. Anal. 35 (2000) 127]. © 2003 Elsevier B.V. All rights reserved. JEL classification: C91; G12; G14
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