Investing and Fear - a behavioral study

I thought this was interesting.  Here is a study out of Austria on individual risk preferences, trading behavior, and asset prices.

Does Investor Risk Perception DriveAsset Prices in Markets? Experimental Evidence
Jürgen Huber (juergen.huber@uibk.ac.at), Stefan Palan (stefan.palan@uni-graz.at) and Stefan Zeisberger (s.zeisberger@fm.ru.nl)  No 2017-05, Working Paper Series, Social and Economic Sciences from Faculty of Social and Economic Sciences, Karl-Franzens-University Graz 

Here are some key points:

• "We are the first to explore how individual risk perception influences prices and trading behavior in a market setting by exposing subjects to a number of differently shaped return distributions which they then trade on.  

• Our findings confirm previous studies on risk perception at the individual level, especially by Anzoni and Zeisberger (2017). In particular, we observe that investors perceive risk mostly as the probability of incurring a loss. More importantly, we further observe that individually elicited risk perception predicts prices in asset markets  

• Risk perception directly drives trading behavior and, by consequence, prices. Hence, variance of returns is not the main driver for risk perception or for market prices, while the probability of losing is.  

• The probability of incurring a loss explains roughly 96% of the variation in perceived risk, which in turn explains roughly 94% of the variation in average prices.  

• As we observe an average trading price of 119 for asset NoLOSS, subjects actually incur losses with this asset in about 80% of all cases (as 80% of the possible realizations are below 19% return). However, we find most subjects to be either ignorant of this fact or ready to accept the (moderate) losses associated with the asset.  

• While standard finance theory predicts identical prices for most of our assets we find average prices to vary by up to 20 percent, with assets perceived as being less risky trading at significantly higher prices. "  

Comment: 

The implication is, I suppose, that selling low risk assets to the risk averse (e.g., selling option premium or some structured products) could be expected to have excess returns.