When do robo-advisors make us better investors? The impact of social design elements on investor behavior

Camila Back, Stefan Morana and Martin Spann

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2023, vol. 103, issue C

Abstract: Investors increasingly can obtain advice from “robo-advisors", artificial intelligence–enabled digitalized service agents. We study whether and why the provision of investment advice from a robo-advisor improves individuals’ investment decisions. In two consequential induced-value experiments, we analyze the well-documented disposition effect, which reflects investors’ greater propensity to realize past gains than past losses. We find that the availability of a robo-advisor reduces (i.e., mitigates) investors’ disposition effect (Study 1). Moreover, imbuing the robo-advisor with social design elements (e.g., a name and the ability to communicate using natural language) negatively affects investment behavior (i.e., increases the disposition effect). The extent to which investors seek advice mediates this effect, i.e., investors ask for advice to a lesser extent from a robo-advisor with, compared to without, social design elements (Study 2). Our findings advance our understanding of the benefits of artificial intelligence-enabled advisors for improving decision making. However, our results also imply increased psychological hurdles of asking for advice from human-like robo-advisors and highlight potential risks of imbuing them with social design elements, which has become a widespread practice to give robo-advisors a human touch.

Keywords: Robo-Advisors; Financial Advice; Social Design Elements; Anthropomorphism; Disposition Effect; Economic Experiment (search for similar items in EconPapers)
JEL-codes: D83 D84 D91 G11 G41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S2214804323000101
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:103:y:2023:i:c:s2214804323000101

DOI: 10.1016/j.socec.2023.101984

Access Statistics for this article

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) is currently edited by Pablo Brañas Garza

More articles in Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) from Elsevier
Bibliographic data for series maintained by Catherine Liu ().