An Experimental Study of the Effect of the Anchor of the Option's Underlying Asset on Investors’ Pricing Decisions

Naveh Eskinazi, Miki Malul, Mosi Rosenboim, Tal Shavit

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

The current study tests experimentally whether decision makers' options pricing is biased by the magnitude of the option's underlying asset outcomes in what is called an anchor effect. We recruited 1,023 participants through Amazon’s Mechanical Turk platform (MTurk) and assigned them randomly to eight groups that differed by type of asset and pricing position (buy or sell). Participants were asked to price a lottery, meaning, the option, whose outcomes are derived from an underlying lottery with a high, low or non-numerical possible outcome. The results indicate that the underlying asset's magnitude (low or high) creates an anchor that affects the option’s pricing. However, the option's pricing is not affected by framing it as a derivative lottery. To the best of our knowledge, this is the first study that examines whether the underlying asset creates an anchor that affects an option’s pricing.

Original languageEnglish
JournalJournal of Behavioral Finance
DOIs
StateAccepted/In press - 1 Jan 2022

Keywords

  • Anchoring effect
  • Derivative pricing
  • Financial assets
  • Framing effect
  • Options

ASJC Scopus subject areas

  • Experimental and Cognitive Psychology
  • Finance

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