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AbstractWe use unique case study data to analyze the behavior of top managers in an executive stock option plan. We gather questionnaire data on the managers' traits and combine it with exercise data. Managers in our sample expect low volatilities (compared to historical estimates) and are well diversified and modestly risk averse. This implies that the value–cost wedge of options can be smaller than usually assumed. The exercise decisions vary with expected volatility, managerial wealth, and mental accounting. Managers expecting lower volatility exercise earlier. This result is consistent with the predictions of expected utility models using our managers' survey parameters.

Abstract
We argue that the relative expertise of contracting parties strongly affects contractual outcomes. Using unique data on company acquisition contracts, we document that lawyers with higher expertise relative to their counterparties negotiate better risk allocation for their clients and more favourable target prices. The benefits of high expertise outweigh its costs, largely because high-expertise lawyers economise on transaction costs by shortening negotiation times. Our findings suggest a need for explicit modelling of contracting skills, and they help explain heterogeneity in legal fees across law firms and the role of league tables of law firms.