In early October, Daniel Kahneman and Vernon Smith won the Nobel Prize in Economic Sciences for their research, conducted independently, into how individuals make economic decisions. The two professors discovered that investors are not systematically rational, as traditional economic theory asserts (much of Kahneman’s research, it should be noted, was conducted with his longtime collaborator, the late Amos Tversky). Investors make decisions for emotional reasons, they base their decisions on shaky premises, they are quick to see cause and effect where there may be none, and so on. The professors’ research provided an impetus, respectively, to the burgeoning fields of behavioral finance and experimental economics. So what does this mean for the markets? Since the stock market is based on the cumulative decisions of individuals, does this suggest that the market isn’t efficient at determining the correct prices of stocks? Do arbitrage opportunities abound?…