The authors describe a mistake called "availability bias." For example, they note that people assess the likelihood of risks by asking how readily examples come to mind. People are much more concerned about a risk when they can easily think of relevant examples than if they can't. Thaler and Sunstein note that because homicides are more familiar than suicides, people tend to wrongly believe more people die from homicide. If you have a personal experience with an earthquake, you're more likely to believe an earthquake is likely than if you just read about one.
Regarding investing, advisors can appropriately increase investors' level of fear during good times by showing them that history is filled with unexpected events that led to bear markets. During bear markets, they can help prop up investor confidence by reminding them of similar situations when everything eventually turned out well.
On Wednesday, we'll see how an advisor can help investors have the courage (in bear markets) and discipline (in bull markets) needed to rebalance their portfolios.
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