I came across a fascinating study in which humanizing an AI investment advice interface was associated with lower returns for investors.

There are lots of angles to unpack here, but here is a quick, conceptual breakdown of the study and my quick thoughts:

-Participants were given access to a trading platform to monitor their performance
-The availability of AI investment advice was shown to reduce the disposition effect, which was associated with better performance
-However, when the delivery of the AI investment advice was "humanized" (using natural language to chat with the investor, giving the bot a human face and name), investors faired WORSE
-This was a function of the investor asking for advice LESS from the humanized AI advice

This is a striking finding. The very features designed to make these platforms more approachable could push investors away from advice.

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When we interact with a clearly artificial system – think a basic interface with buttons and data – we approach it as a tool. We don’t worry about judgment or feel the need to protect our ego.

This has significant implications when we think about maximizing the outcomes for investors. Investors who select into working with a human advisor are qualitatively different than investors who prefer to manage their own investments. Conversely, someone might choose a DIY platform for a variety of reasons, including not wanting to work with a human or bad past experiences with an advisor, to name just a few.

They don't want a human advisor so humanizing AI tools is not something they want, and moreover, something they might avoid - no matter how good the advice is.

My column on this in The Globe and Mail is unfortunately paywalled, but if you have a subscription click on the article below. The original study is not paywalled, however (you may need a free account with ScienceDirect though): link.

Why humanizing AI can backfire and lead to worse returns
While AI-driven investment advice showed potential in reducing behavioural biases like the disposition effect, adding human-like features appears to make investors less likely to seek and follow the AI robo-adviser’s guidance
The Globe and MailPreet Banerjee