Overvaluing simple bets: Evidence from the options market

• 成果类型: Article
• 署名作者: Goodman, Aaron; Puri, Indira
• 署名单位: New York University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2025.104140
• 发表日期: 2025
• 关键词: Behavioral decision theory; Retail exchanges; Trading patterns

摘要

We document a new anomaly that we prove standard preference models are unable to capture, regardless of functional form or parametric specification used. Analyzing trading behavior in the binary option market for retail investors, we find that market participants purchase binary options although strictly dominant bull spreads are available at lower prices: 15% of S&P index, 19% of gold, and 25% of silver trades violate no-dominance conditions consistently across three different asset classes. Buyers of dominated binaries lose on average 34% of the contract price by forgoing the dominating product. We prove that neither prospect theory nor ambiguity aversion nor other popular theoretical justifications for retail anomalies such as rational inattention and salience, can capture these results. We also test for, and reject, standard financial explanations including trading costs, liquidity, exchange fixed effects, and noise trading. We show that our results are consistent with retail investors valuing simple, easy-to-understand binary bets. Our work provides a theoretically-grounded empirical impetus for research in behavioral finance which goes beyond historically pervasive utility frameworks.