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

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.