Artificial Intelligence and Its Impact on Retail Investor Decisions in India
Keywords:
Robo-Advisory, Behavioural Biases, Explainable AI (XAI), Rational Brake System Circuits in the form of circuit breakers, Fintech Adoption,,Abstract
The penetration of Artificial Intelligence (AI) in the Indian financial markets, and more specifically in the banking industry, is redefining investment decisioning for retail investors. We examine the influence of AI-based tools—robo-advisors and predictive analytics—on psychological heuristics, and portfolio performance for retail participants, in this paper. The study also seeks to understand if technology can reduce prevalent behavioral biases in a market - the context being the growing AI market in India which is estimated to touch 31.94 Billion by 2031. Quantitative research instrument used in the study while descriptive and regression analysis are used to test the adoption indicators and results based on sample of 100 active retail investors.
"Rational circuit breakers" The research suggests that the AI tools act as powerful "rational circuit breakers", putting a check on panic-inducing selling and herd behaviour by offering data-driven "second opinions". Empirical findings reveal a statistically significant positive relationship between using AI tool and perceived portfolio returns (R = 0.74, R2 = 0.55), which suggests that investors are more satisfied with automating risk management and rebalancing. But the research also uncovers a significant "trust gap" with 48% of those surveyed ranking the "black-box" nature of algorithms as one of their primary obstacles to implementation. Also, if AI abolishes loss aversion under UILCHF then this could incidentally raise overconfidence and increase trading activity or "algorithmic over-reliance". The conclusion highlights the need for a shift towards Explainable AI (XAI) to ensure transparency and generate long-term trust with Indian investors. By blending behavioral finance theory and technology adoption models, this study offers pragmatic recommendations for fintech developers and policy makers in their endeavor to build a more efficient, rational and inclusive investment landscape in India.
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