Tuesday, September 17, 2024

Algo anxiety and aversion - Investors do fully trust AI

 


The FT recently posted an article on algo anxiety based on a paper titled, "Man vs Machine: The influence of AI forecast on investor beliefs". This is a topic that has been associated with technological change in finance for years. We have discussed this issue in the past as the problem of algorithm anxiety. Humans wants to embrace models, but they often don't trust models. 

The authors look at incentive experiments with over 3500 participants to determine whether investors are more likely to change their beliefs in response to a forecast generated by AI. The researchers find that investors are less responsive when an analyst incorporates AI to help generate forecasts. For all the talk about the AI revolution, there is still the issue that many do not trust the AI forecast, or at least there is a degree of caution or anxiety associated with these forecasts.


It was found that those who are more AI-literate will be more responsive, and women are more open to AI generated forecasts. New technology is feared less when it is better understood. New ways of generating forecasts may be effective but there is learning curve before it is accepted.

We have discussed this issue in the past. Here are a few references:

We forgive humans but not machines - Bias against algos

"Algorithm aversion" and managed futures

Algorithm aversion or just a desire for low cost optionality?

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