The Effect of Humanizing Robo-Advisors on Investor Judgments

40 Pages Posted: 6 Nov 2019 Last revised: 20 Jul 2020

See all articles by Frank D. Hodge

Frank D. Hodge

University of Washington - Michael G. Foster School of Business

Kim I. Mendoza

University of Illinois at Urbana-Champaign - Department of Accountancy

Roshan K. Sinha

Indiana University - Kelley School of Business - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2020

Abstract

We examine the effect of humanizing (naming) robo-advisors on investor judgments. In our first experiment, we find that investors are more likely to rely on the investment recommendation of an unnamed robo-advisor, whereas they are more likely to rely on the investment recommendation of a named human advisor. Theory suggests one reason that naming a roboadvisor may have drawbacks pertains to the complexity of the task the robo-advisor performs. We explore the importance of task complexity in our second experiment. We find that investors are less likely to rely on a named robo-advisor when the advisor is perceived to be performing a relatively complex task, consistent with our first experiment, and more likely to rely on a named robo-advisor when the advisor is perceived to be performing a relatively simple task, consistent with prior research on human-computer interactions. Our findings contribute to the literature examining how technology influences the acquisition and use of financial information and the general literature on human-computer interactions. Our study also addresses a call by the SEC to learn more about robo-advisors. Lastly, our study has practical implications for wealth management firms as they increase their use of robo-advisors.

Keywords: Humanizing Technology, Financial Advisors, Investment Decisions, Robo-Advisors

Suggested Citation

Hodge, Frank Douglas and Mendoza, Kim I. and Sinha, Roshan, The Effect of Humanizing Robo-Advisors on Investor Judgments (July 1, 2020). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3158004 or http://dx.doi.org/10.2139/ssrn.3158004

Frank Douglas Hodge

University of Washington - Michael G. Foster School of Business ( email )

Paccar Hall 540, Box 353200
Seattle, WA 98195-3200
United States
206-616-8598 (Phone)
206-685-9392 (Fax)

Kim I. Mendoza (Contact Author)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Roshan Sinha

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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