The pricing-kernel, when estimated from index options, appears to show risk-loving behaviour for small gains and losses. Although this puzzle could be caused by option buyers using subjective probability-weighting, such weighting generates an unrealistically large (and time-varying) risk-premium. A better explanation is that limited arbitrage allows the market to be segmented into put buyers on the downside and call buyers on the upside. If the put buyers are pessimistic and underconfident, but the call buyers are optimistic and overconfident, the perceived physical distribution is highly skewed. Using option prices over a period of 15 years, we show that the segmented model can solve the puzzle. It also demonstrates some well-documented features, including: a small aggregate risk-premium, loss-aversion, and an impact of volatility on the kernel.