Behavioral Biases and the Efficiency of AI-Driven Equity Investment Decisions: The Moderating Role of Digital Literacy in Sri Lanka

Purpose: The contemplation of this study is to identify the impact of behavioral biases on the efficiency of AI-driven investment decisions.
Design/Methodology/Approach: The study was conducted as a quantitative study where primary data were collected through a questionnaire distributed among investors in Sri Lanka. The behavioral biases are measured through cognitive error and the emotional biases. The use of technology requires certain skills; therefore, the digital literacy was empirically identified to be moderating the impact of behavioral biases on the efficiency of AI-driven investments. The equity investors using AI recommendations for investment decisions were regarded as the population; and a sample of 384 respondents was selected, allowing a 5% margin of error.
Findings: The findings of the study revealed that there is a significant impact of cognitive error and the emotional biases on the efficiency of AI driven investments. Further, there is a significant moderating role of digital literacy between the behavioral biases and AI-driven investment decision making. The findings of the study provide insights into AI model training, enabling developers to incorporate these behavioral considerations into the model.
Originality: This study provides new insights into the impact of behavioral biases on the efficiency of AI-driven investments which are a practical significance for the investors; operating within a system where technology is increasingly integrated into the financial sector. The study provides novel knowledge by examining the cognitive errors and emotional biases of investors and how they deviate the efficiency of the investments they make.