A matter of trust: Investors don’t fancy AI’s stock-picking abilities
If there’s one thing that has the potential to make or destroy wealth quickly, it’s investing in the share market, where a complicated array of factors weigh on a listed company’s valuation.
You’d think then that AI would be the perfect solution to cutting through the complexity, analysing the masses of sharemarket data and helping you make some winning stock picks.
It may well be, but according to University of Auckland researcher Dr Gertjan Verdickt, investors would still rather have a human advising them on what listed companies to invest in.
Verdickt and his colleague and Francesco Stradi from Begian university KU Leuven, undertood a study involving 3,600 participants in the US that examined how they responded to S&P 500 stock predictions made by human analysts, AI systems and a combination of both.
"We found that investors are more likely to believe human analysts first, followed by a combination of both human and AI,” says Verdickt, a finance lecturer at the University of Auckland Business School.
“AI-generated predictions are viewed with the most scepticism.”
The University of Auckland's Dr Gertjan Verdickt
Maybe people are just turned off by the cold, anonymous, slightly alien term “artificial intelligence”?
Well, the researchers swapped out AI for ChatGPT, the chatbot that just about anyone likely to be investing in the sharemarket has likely heard of, if not used. Was that any more trusted?
Nope. "Contrary to recent research suggesting familiarity enhances trust in technology, our results indicate that replacing ‘AI’ with ‘ChatGPT’ does not improve investor trust,” says Verdickt.
“In fact, we find that investors distrust ChatGPT-generated advice, perhaps even more than the generic 'AI model' we reference in our study."
That’s bad news for OpenAI’s Sam Altman, who is looking to try and shake off the non-profit oversight of his company as he seeks to secure a US$6 billion infusion of investment from Microsoft, Nvidia, Softbank and others.
But maybe the lack of trust is more to do with the conduct of AI companies rather than the predictive abilities of AI. As the researchers point out, other studies show that AI can out-perform human analysts when it comes to predicting share performance. That’s not surprising.
But the research also shows an interesting gender split with women more open to trusting the advice of AI stock advisors.
"Men tend to be overconfident in their financial abilities, which may explain why they are more sceptical of AI," says Verdickt.
"Also, we have seen in other studies that women, on average, get different and often worse advice from financial advisers, such as recommendations for products with higher fees and less risk."
People who gave their political affiliation as Democrat, were more likely to trust AI-generated forecasts than Republicans.
The key takeaway, says Verdickt, is that financial institutions need to approach using AI in their products with caution. A number of AI-based stock market apps are now available, mainly in the US market.
For instance, Magnifi lets you connect your brokerage account to the app to let AI analyse your portfolio. An AI assistant will tell you if you are paying too much in fees for mutual funds.
Trendspider allows you to back-test your investment decisions to see how your current investing strategy would have performed in previous market cycles.
So AI certainly has it’s useful place in share market investing. But as is the case with accountants and lawyers, AI isn’t going to put stock brokers out of work any time soon.
Photo credit: Clay Banks
