Why is our reaction to robo-advice different than our reaction to human advice? Two terms – ‘algorithm aversion’ and ‘algorithm appreciation’, provide insight.
When a new technology is introduced – we usually don’t trust it immediately, in fact, we impose a higher bar on the new technology. So, initially, users hold robo-advice to a higher standard compared to human advisors. Even when data overwhelmingly suggests that robo-advice out-perform human advisors. This is algorithm aversion.
But over time the new technology learns and improves at breakneck speed and in the case of robo-advice also deploys that learning at scale immediately. Robo-advice becomes so much better than human advice and forecasting that even with our lofty expectations, it becomes our default choice. This leads us to algorithmic appreciation.
Our Founder & CEO Gaurav discusses this and more in a very informative podcast with Alex from BloombergQuint.
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