Behavioral Finance research indicates that all six assumptions are in error to various degrees. Assumptions 1 and 6 are wrong on general scientific grounds. Assumption 1 is refuted by quantum theory and complexity theory. Assumption 6 by neuroscience. Assumption 2 is refuted by Agent Based economic modeling. Assumptions 3, 4, 5 are refuted by social and evolutionary psychology and neuroscience.
Global investing will become more difficult to implement because Trust risk increases when dealing with “outsiders”.
This is already apparent with “Home Bias”. Survey evidence from a sample of 8,000 individual investors indicates that neither contracts or statistical measures of risk are viable substitutes for trustworthiness.
Risk premiums and interest rates are lower in countries with higher levels of interpersonal trust.
The influence of Affect on investment should be given greater emphasis because it is the evolutionary inborn common denominator between cognition and emotion.
It will be necessary to control for the affective bias between expected return and perceived risk.
Because decision makers have little ability to imagine how they would feel about different potential investment outcomes greater use of experiential exercises should yield better choices and greater satisfaction.