Automating Rationality: The Potential of Robo-Advisors in Reducing Behavioral Biases

Decision-making in investments is often flawed due to behavioral biases, leading to suboptimal choices. Robo-advisors aim to mitigate these biases through personalized risk assessment. However, their effectiveness in India is understudied. A study of 192 retail investors in Kolkata found that biases like overconfidence and loss aversion lead to irrational investment decisions. Surprisingly, Indian robo-advisors struggle to address these biases. The study suggests that next-gen robo-advisors, informed by behavioral finance insights, are needed to support rational investment decisions. It also highlights robo-advisors' potential to democratize financial guidance, especially for underserved populations, and advocates for greater awareness and adoption in India's financial ecosystem.