Economic and Policy Implications of Artificial Intelligence by Domenico Marino & Melchiorre A. Monaca

Author:Domenico Marino & Melchiorre A. Monaca
Language: eng
Format: epub
ISBN: 9783030453404
Publisher: Springer International Publishing

3 Benefits and Risks

The propulsive impulses to the development of roboadvice are justified in light of the benefits that the same is hoped to generate: the possibility of accessing a service at lower prices than those ordinarily practiced by traditional advisors (Linciano et al. 2019)36; greater accessibility, bringing businesses and investors closer to the financial markets and expanding the range of services available; the streamlining of intermediation, which thus becomes “disintermediate”.

It is imagined, indeed, that a limited (if not even absent) investor-consultant interaction, in addition to increasing the speed and convenience of the service (Hofacker 2001), contributes to reducing the psychological “pressing” on the client; furthermore, the digital context in which data is collected and processed would be able to reduce the information gap.37

Also the European supervisory authorities (ESAs),38 based on the research conducted, have identified and indicated the benefits deriving from automation in financial advice (ESAs 2015).39 The same institutions of the European Union have been working in virtue of the benefits glimpsed, aiming to promote the development of the sector, ensuring the reconciliation between the various interests involved (European Commission 2016).40

Nevertheless, the risks of implementing roboadvice, which impose a certain caution in the approach to the phenomenon, cannot be ignored.

First of all, it detects the risk of “too fast click decisions”, which acts as a counterpart to the speed that was greeted positively just now: the same rapidity could generate an unjustified “frenzy” to proceed, thus eliminating the accuracy of the choice. Also, the absence of interaction could activate a boomerang effect for the customer, who instead of appreciating the context and feeling the psychological “pressing” reduced, could feel uncomfortable, consequently losing lucidity in his choices (Prasad and Aryasri 2009).

Still, it must not forget the dangers of information overload which is possible because of the digitized way of collecting and sharing information (Linciano et al. 2019).41

Finally, the dangers hidden behind an activity carried out by an unauthorized intermediary must be considered; they are less perceivable “at a distance” and with the “filter” of a robot,42 or in the presence of conflicts of interest, especially where the algorithm has been already set in the programming phase to “direct” customers towards investment choices that are convenient for the intermediary.

More generally, the advent of a robotic element within the procedure aimed at financial advice involves a multiplier effect of the risks for the investor, which may not have clear features of the service, the nature of the information received, the identity of the subject providing the service: the technological dimension adds others to the “ordinary” ones in every investment decision.43

The risks associated with the roboadvice have also been identified by the ESAs in the “Report on automation in financial advice”: “the ESAs identified risks of automated advice and financial institutions in respect of:—consumers with limited access to information and/or limited ability to process that information;—flaws in the functioning of the tool due to errors, hacking or manipulation of the algorithm;—legal disputes arising from two to unclear allocation of liability; and—the widespread use of automated tools” (ESAs 2016)44.

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