Behavioural Biases and Robo-Advisors: Analysing the Role of Automated Financial Guidance in Shaping Investor Choices

This paper examines the relationship between the growing trend of Robo-advisors and the behavioural biases of individual investors. The research focuses on three main aspects: reasons for adoption of Robo-advisors for financial advice, wealth management, and portfolio construction by individual investors; the role of Robo-advisors on reducing investors' behavioural biases; and the various opportunities and challenges posed by the adoption of Robo-advisors by individual investors. The study finds that Robo-advisors positively influence investor behaviour by improving portfolio diversification and enhancing overall investment efficiency. These automated platforms have been shown to reduce several behavioural biases commonly observed in individual investors, such as the disposition effect, home bias, and rank effect. By relying on algorithms and data-driven approaches, Robo-advisors help mitigate emotional decision-making and promote more rational investment strategies. However, while Robo-advisors effectively address certain biases, they do not completely eliminate them. There remain areas of behavioural influence that still impact investor decisions despite the use of automated advisory tools. The paper also discusses the opportunities and challenges of adopting Robo-advisors for individual investors seeking more cost-effective and accessible financial advice. The findings suggest that while Robo-advisors have made significant strides in improving financial decision-making, there is still room for further development in reducing biases and enhancing investor outcomes. Keywords: Robo-advisor, Behavioural finance, Behavioural biases, Automated financial advice.