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Investor heuristics and risk-blind confidence rule current markets, study finds
Investors lean on old heuristics amid high valuations, exposing portfolios to compounded risk if sentiment turns.
A behavioural finance study published on 31 October 2025 found that many investors are abandoning rigorous analysis in favour of familiar heuristics, despite evidence these mental shortcuts underperform in volatile markets. The report revealed that over 70% of surveyed asset-managers admitted relying on rules-of-thumb such as ‘buy the dip’ or ‘tech always wins’, even while acknowledging these don’t consistently work. The findings raise concern that mounting valuation risk combined with cognitive bias could amplify drawdowns if sentiment reverses — a key warning for portfolios heavily tilted toward growth and momentum stocks.