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The perils of overconfidence: Why many consumers fail to seek advice when they really should

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  • David R. Lewis

    (Ryerson University)

Abstract

Consumers regularly make decisions. Some of these decisions are relatively simple, such as a selecting a jam or a coffee, where the choice is entirely subjective. Others, such as investment decision-making, are risky, complex, consequential, and there is a normatively optimal choice. Seeking advice from an expert is a reasonable solution in these circumstances, and yet a minority of investors turn to a professional for advice. As an alternative to human advisors, technology is increasingly being harnessed to provide effective and low-cost advice to assist consumers in making decisions. In a retail context, these are shop bots and search engines often used on a mobile phone while shopping. In an investment context, these are frequently referred to as “robo-advisors”. Examining consumer intention to seek advice in an investment context, the current study demonstrates that, among numerous factors examined, unfounded confidence was the best indicator of consumer reluctance to seek advice. Robo-advisors, as artificial intelligence agents providing financial literacy instruction and impartial expert advice, may offer a solution.

Suggested Citation

  • David R. Lewis, 2018. "The perils of overconfidence: Why many consumers fail to seek advice when they really should," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 23(2), pages 104-111, June.
    • Handle: RePEc:pal:jofsma:v:23:y:2018:i:2:d:10.1057_s41264-018-0048-7
    DOI: 10.1057/s41264-018-0048-7
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    Cited by:

    1. Dominik M. Piehlmaier, 2022. "Overconfidence and the adoption of robo-advice: why overconfident investors drive the expansion of automated financial advice," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-24, December.
    2. Thérèse Lind & Ali Ahmed & Kenny Skagerlund & Camilla Strömbäck & Daniel Västfjäll & Gustav Tinghög, 2020. "Competence, Confidence, and Gender: The Role of Objective and Subjective Financial Knowledge in Household Finance," Journal of Family and Economic Issues, Springer, vol. 41(4), pages 626-638, December.
    3. Yao, Zheying & Rabbani, Abed G., 2021. "Association between investment risk tolerance and portfolio risk: The role of confidence level," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    4. Pawe{l} Niszczota & Sami Abbas, 2023. "GPT has become financially literate: Insights from financial literacy tests of GPT and a preliminary test of how people use it as a source of advice," Papers 2309.00649, arXiv.org, revised Sep 2024.
    5. Niszczota, Paweł & Abbas, Sami, 2023. "GPT has become financially literate: Insights from financial literacy tests of GPT and a preliminary test of how people use it as a source of advice," Finance Research Letters, Elsevier, vol. 58(PA).
    6. Yun-Ho Lee & Weihua Ma, 2024. "The Relationship between Financial Literacy Misestimation and Misplacement from the Perspective of Inverse Differential Information and Stock Market Participation," IJFS, MDPI, vol. 12(3), pages 1-24, August.
    7. Wookjae Heo & Abed G. Rabbani & Jae Min Lee, 2021. "Mediation between financial risk tolerance and equity ownership: assessing the role of financial knowledge underconfidence," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 26(3), pages 169-180, September.
    8. Zhu, Hui & Vigren, Olli & Söderberg, Inga-Lill, 2024. "Implementing artificial intelligence empowered financial advisory services: A literature review and critical research agenda," Journal of Business Research, Elsevier, vol. 174(C).

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