What happens to our psychology in bear markets?

Because I think it possible that we could be faced with a bear market in the next year I thought it was worthwhile rereading what James Montier had to say on the subject in his excellent book Value Investing. Forewarned is forearmed when it comes to our own psychological pressures.
He starts by noting that we exhibit many of the same biases in thought that lead us to extrapolate the good times at the peak when the market is down in the dumps along with our spirits (in chapter 13).
We seem to forget the message that Abraham Lincoln brought to mind (given to King Solomon): “Solomon once charged his wise men to invent him a sentence, to be ever in view, which should be true and appropriate in all times and situations. They presented him with the words, ‘And this, too, shall pass away’. How much it expresses! How chastening in the hour of pride. How consoling in the depths of affliction” (Lincoln)
The academic researchers Shiv, Loewenstein, Bechara and Demasio in 2005 published a paper demonstrating investor psychological bias is difficult to shake off.
They ask people to play a game. Each was given $20 at the beginning. There are twenty rounds. At the start of each the participant is asked whether they want to invest. This is always $1. A fair coin is flipped.  If it’s heads the “investor” gets $2.50. Tails, and the investor loses the $1.
Logically, we should all invest in every round – expected value of each round is $1.25, or a total $25 after 20 rounds. Then, there is only a 13% chance of ending up with less than $20.
Also logically, we should recognise that the outcome of a prior round should not influence the decision on whether to invest in the next round – the coin has no memory.
What they found
There were two groups of people chosen for the study

1. “Normal” people. These participants found it difficult to do the logical thing. In the round just after they had lost, in only one-third of cases did they go ahead and invest. If they had previously won they invested over 70% of the time. Recently experienced fear or joy leads to poor decision-making.
2. Brain damaged people who no longer feel fear. They invested around 85% of the time following a round in which they lost, the same as when they had recently won. Losing or winning in previous rounds does not lead the “damaged” people away from the rational path.

James Montier says, “The parallels with