I think they invest based on some recommendation from some trusted sources. It's perfectly normal to trust your advisers and invest into something that you do not understand yourself. And it's also normal to pick a random coin and invest a little instead of gambling the same amount of money in Las Vegas considering that chances of winning in ICOs are higher than in Las Vegas. Some people gamble more, some less, it all depends on individual taste of winning and risk tolerance.

The problem with over-regulation, bad regulation and lawsuits is similar to problem with antibiotic killing useful bacteria in human gut. With help of good advisers community will eventually find a way to differentiate bad ICOs from good ICOs. With regulation, advisory business will not thrive and public will be forced to rely on regulation more and more, which benefits criminals more and more.