Abstract
We set a theoretical model in this study to investigate the effect of ambiguity aversion, which is seperated from risk aversion, on empolyees' subjective valuations. We argue that unlike risk aversion resulting in subjectively undervaluing of stock options under non-transferability contraints, ambiguity aversion may make the empolyees pessmisticabout their wealth and overvalue the stock options which can provide an alternative explanation why non-executive empolyees overvalue thier empolyeestock options and defer exercises.