Abstract:
While heuristics are widely applied in decision-making,
they can lead to biases and are therefore considered
irrational behavior. However, the Adaptive Market
Hypothesis implies that heuristics are neither rational nor
irrational, and individuals should learn to use heuristics
appropriate to the structure of the environment, which is
referred to as “ecological rational behavior”. This study
examines how individual investors can succeed using
heuristics. Data was collected from 395 individual investors
of the Colombo Stock Exchange through a questionnaire
survey and analyzed using PLS-SEM. The findings indicate
that reducing inappropriate heuristics depends on selfreflection
of investment experience rather than the
experience itself. Further, contrary to social learning, social
conformity in response to market uncertainties increased
the use of inappropriate heuristics in their decision-making.
