1. Loss aversion causes investors to shy away from stocks; therefore, stocks earned very large returns relative to risk free government securities.
2. When the stakes are smaller, people actually become more tolerant of risk, not less tolerant.
3. There are 2 main implications of investor overconfidence. The first is that investors take bad bets because they fail to realize that they are at an informational disadvantage. The second is that they trade more frequently than is prudent, which leads to excessive trading volume.
4. The departure of price from fundamental value does not automatically lead to risk-free profit opportunities. In fact, the "SMART MONEY" may avoid some trades, although they have identified mis-pricing. Why? Because of non-fundamental risk, meaning risk associated with unpredictable sentiment.
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