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Long-lasting heuristics principles for efficient investment decisions

Gregory Gadzinski (Department of Economics and Finance, International University of Monaco, Omnes Education, Monte Carlo, Monaco)
Markus Schuller (Panthera Solutions and Department of Economics and Finance, International University of Monaco, Monte Carlo, Monaco)
Shabnam Mousavi (Center for the History of Emotions, Max-Planck-Institute for Human Development, Berlin, Germany)

Qualitative Research in Financial Markets

ISSN: 1755-4179

Article publication date: 2 March 2022

Issue publication date: 7 July 2022

409

Abstract

Purpose

Behavioral solutions to our cognitive biases have long been studied in the literature. However, there is still ample evidence of behavioral biases in decision-making, with only limited improvement in the medium/long term even when debiasing methods are applied. The purpose of this paper is to describe how financial investors could benefit from a proactive management of emotions combined with a set of learning and decision-making heuristics to make more efficient investments in the long run.

Design/methodology/approach

First, the authors offer a classification of the appropriate quantitative and qualitative methodologies to use in different ecological environments. Then, the authors offer a list of detailed heuristics to be implemented as behavioral principles intended to induce more long-lasting changes than the original rules offered by the adaptive toolbox literature. Finally, the authors provide guidelines on how to embed artificial intelligence and cognitive diversity within the investment decision architecture.

Findings

Improvements in decision skills involve changes that rarely succeed through a single event but through a succession of steps that must be habitualized. This paper argues that implementing a more conscious set of personal and group principles is necessary for long-lasting changes and provides guidelines on how to minimize systematic errors with adaptive heuristics. To maximize their positive effects, the principles outlined in this paper should be embedded in an architecture that fosters cognitively diverse teams. Moreover, when using artificial intelligence, the authors advise to maximize the interpretability/accuracy ratio in building decision support systems.

Originality/value

The paper proposes a theoretical reflection on the field of behavioral research and decision-making in finance, where the chief goal is to offer practical advices to investors. The literature on debiasing cognitive biases is limited to the detection and correction of immediate effects. The authors go beyond the traditional three building blocks developed by the behavioral finance literature (search rules, stopping rules and decision rules) and aim at helping investors who are interested in finding long-term solutions to their cognitive biases.

Keywords

Citation

Gadzinski, G., Schuller, M. and Mousavi, S. (2022), "Long-lasting heuristics principles for efficient investment decisions", Qualitative Research in Financial Markets, Vol. 14 No. 4, pp. 570-583. https://doi.org/10.1108/QRFM-04-2021-0072

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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