Algorithm aversion, emotions, and investor reaction: Does disclosing the use of AI influence investment decisions?

Abstract

Businesses are increasingly using artificial intelligence (AI) in accounting systems to reduce uncertainty and improve accuracy. However, algorithm aversion (Dietvorst et al., 2015) indicates that individuals often avoid information provided by automated systems as compared to that provided by humans. This paper is an exploratory step towards documenting an emotional response to AI. We experimentally investigate how disclosing the use of AI rather than human staff for estimating the fair value of an asset influences investment decisions through lower levels of emotional response, particularly in pleasantness and attentiveness. Consistent with algorithm aversion, we find that disclosing the use of AI to estimate the asset’s fair value reduces the effect of information valence on nonprofessional investor responses. Specifically, when a company’s AI usage is disclosed, investors make smaller additional investments when fair value information is positive and smaller investment withdrawals when fair value information is negative, as compared to when human staff usage is disclosed. Importantly, we also find that emotions mediate the effect of information source (AI versus human staff) and moderate the effect of information valence on investment decisions.