The Affect Heuristic
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In fairness to analysts, if you are judging stocks that nobody is familiar with, or even worse, that nobody except for people who are complete morons are familiar with, then the risk-return relationship will break down. In general, judging whether an investment is fairly priced depends on your confidence in the judgement of the informed traders (which may include you, if the investment is familiar). The ordinary economic theory you cite does not apply when the market may become inefficient.