You are hereHome › College of Business (COB) › Department of Accounting and Finance › Krieger, Kevin › Anchoring and probability weighting in option prices Style APAChicagoHarvardIEEEMLATurabian Choose the citation style. DeLisle, R. J., Diavatopoulos, D., Fodor, A., & Krieger, K. (2017). Anchoring and probability weighting in option prices. The Journal of Futures Markets, 37(6), 614-638. doi:10.1002/fut.21833 Anchoring and probability weighting in option prices Details Title Anchoring and probability weighting in option prices Contributor(s) DeLisle, R. Jared (author)Diavatopoulos, Deam (author)Fodor, Andy (author)Krieger, Kevin (author) Located In The journal of futures markets ISSN 02707314 Date 2017 Notes JEL Classification: G1, G13 DOI 10.1002/fut.21833 Abstract Cumulative prospect theory argues that the human decision-making process tends to improperly weight unlikely events. Another behavioral phenomenon, anchoring bias, is the failure to update beliefs away from established anchor points. In this study, we find evidence that equity option market investors both anchor to prices and incorporate a probability weighting function similar to that proposed by cumulative prospect theory. The biases result in inefficient prices for put options when firms have relatively high or relatively low implied volatilities. This has implications for the cost of hedging long portfolios and long individual equity positions.