>Adding new ways to lose tied to illegal activity doesn't really fundamentally change anything.
I think it does because it creates a adds a dimension to the loss that will disproportionately affect the assessment that of risk. For one, this added dimension has only a downside. Think of an auto insurance company who operates in no-fault States. Their behavior (and by extension, the policies they offer) is changed because the risk they incur is higher despite their customer being a good driver. (The analogy being a “good” company still gets punished in the form of less investment under the proposed rules because the risk to the investor is increased).
Second, while people are well attuned to think about risk, they are very bad at judging it. That’s why the fund managers are not generally capable of out performing the market for extended periods. They are either not as savvy as you assume or work under such constraints that they can’t use it to their advantage. Behavioral psychology/economics shows that people are disproportionately risk-adverse so if you think increased risk without an even higher commensurate increase in reward, they tend to avoid taking on any extra risk.
I think it does because it creates a adds a dimension to the loss that will disproportionately affect the assessment that of risk. For one, this added dimension has only a downside. Think of an auto insurance company who operates in no-fault States. Their behavior (and by extension, the policies they offer) is changed because the risk they incur is higher despite their customer being a good driver. (The analogy being a “good” company still gets punished in the form of less investment under the proposed rules because the risk to the investor is increased).
Second, while people are well attuned to think about risk, they are very bad at judging it. That’s why the fund managers are not generally capable of out performing the market for extended periods. They are either not as savvy as you assume or work under such constraints that they can’t use it to their advantage. Behavioral psychology/economics shows that people are disproportionately risk-adverse so if you think increased risk without an even higher commensurate increase in reward, they tend to avoid taking on any extra risk.