On the Relevance of Employee Stock Option Behavioral Models
Résumé
The behavioral framework have proven successful in explaining several puzzling aspects of executive stock-based compensation contracts. A recent literature suggests that both the Cumulative Prospect Theory and the Rank Dependent Expected Utility theory lead to better predictions of Employee Stock Options (ESO) exercise decisions. The aim of this chapter is to provide an overview of those behavioral ESO models and discuss their implications to (1) the valuation of ESO; (2) the design of optimal ESO contracts; and (3) the assessment of employee sentiment.