Do Robo-Advisors Make Us Better Investors

In this video, we take a deep dive into the world of robo-advisors and explore whether they truly make us better investors. We analyze the latest data and research on the topic, and provide a comprehensive overview of the pros and cons of using robo-advisors for investing. Our expert panel weighs in on the effectiveness of robo-advisors, and we provide a behavioral finance perspective on their impact. Whether you're a beginner or an experienced investor, this video will provide valuable insights into the role of robo-advisors in the investment...
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. 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. These results help advance our understanding on the benefits and limitations of artificial intelligence-enabled advisors for improving investors’ behavior in the context of increased digitization of financial services.

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