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Robo-Advice: Transforming Households into Rational Economic Agents

Author

Listed:
  • Francesco D'Acunto

    (Department of Finance, McDonough School of Business, Georgetown University, Washington, DC, USA)

  • Alberto G. Rossi

    (Department of Finance, McDonough School of Business, Georgetown University, Washington, DC, USA)

Abstract

Robo-advice uses big and open data to provide consumers with fully informed and rational-expectation benchmarks in all realms of household finance, including consumption, saving, investment, and debt management choices. It also minimizes the monetary, cognitive, and psychological costs that households face in economic transactions. We review recent research on the features and effects of robo-advice on individual and aggregate economic outcomes through the lens of its differences from traditional human advice. We discuss the distributional implications of robo-advice, its potential role in increasing the effectiveness of economic policies, the role of providers’ incentives, and several questions that are still wide open for researchers in finance, economics, social psychology, and related fields.

Suggested Citation

  • Francesco D'Acunto & Alberto G. Rossi, 2023. "Robo-Advice: Transforming Households into Rational Economic Agents," Annual Review of Financial Economics, Annual Reviews, vol. 15(1), pages 543-563, November.
    • Handle: RePEc:anr:refeco:v:15:y:2023:p:543-563
    DOI: 10.1146/annurev-financial-110921-013217
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    File URL: https://doi.org/10.1146/annurev-financial-110921-013217
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    Citations

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    Cited by:

    1. Schnorpfeil, Philip & Weber, Michael & Hackethal, Andreas, 2023. "Households' response to the wealth effects of inflation," SAFE Working Paper Series 400, Leibniz Institute for Financial Research SAFE.
    2. D’Acunto, Francesco & Rossi, Alberto G. & Weber, Michael, 2024. "Crowdsourcing peer information to change spending behavior," Journal of Financial Economics, Elsevier, vol. 157(C).

    More about this item

    Keywords

    FinTech; household finance; behavioral finance; consumption; debt; investments;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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