Behavioural Insights – AI and Investment Decision-Making

At our annual Market Insights Masterclass, Dr. Ariel Gu (UEA) joined us to pull back the curtain on how AI is fundamentally rewriting investor psychology.

Ariel’s research doesn’t just look at what AI can calculate, it looks at how it’s changing the way we think.

The catalyst? A student who walked into her office and said: “I have a list of stocks recommended by ChatGPT.”

In this video, Ariel shares:

The Three Pillars of a Decision

Every investment sits on three legs: your risk preference, your beliefs about the future, and the rules you use to trade. While AI can’t feel your personal “pain threshold” for risk, it is rapidly taking over the other two, shaping the information we see and the beliefs we form.

Precision vs. Accuracy: The AI Mirage

One of the most provocative points of the morning was the “Sophistication Paradox.” AI tools can analyse mountains of data and present forecasts that look incredibly precise. However, Dr. Gu cautions that precision is not the same as accuracy. By turning messy uncertainty into neat “numerical probabilities,” AI can give investors a dangerous illusion of control.

The Speed Trap

We are moving from a world where humans reacted slowly to news, to one where AI-assisted tools act instantly. Dr. Gu explores a startling possibility: if we all use similar AI models trained on the same data, we won’t see less risk, we’ll see more synchronised, volatile market swings.

Who is Accountable?

Referencing Nobel laureate Herbert A. Simon’s theory of “Bounded Rationality,” the talk concludes with a vital reminder: AI might expand our horizons, but it doesn’t remove our human limits.

“Ultimately, the risk remains 100% human. We are still responsible for the beliefs we choose to act upon.”