> Let's say a regulation was passed that didn't allow market orders. Retail investors would feel "safer" b/c they think the government is protecting them. They will then be more inclined to not bother researching the companies they own, etc because, well, the government has got their back. Why not dump all our money into stocks if the government is gonna protect us, right?

I think you're greatly overestimating this effect. The government already regulates the stock market a lot. One more regulation isn't going to make retail investors suddenly start taking much bigger risks.