Like many other academics, Wendy De La Rosa, a marketing professor at the Wharton School of Business, is excited about the transformative potential of generative artificial intelligence. A professor of marketing at the Wharton School of Business, who is as enthusiastic about the revolutionary potential of generative artificial intelligence as many other scholars.
She warns in her most recent co-authored research that because AI lessens the friction people feel when spending their hard-earned money, it may discourage many people from making wise financial decisions.
In an interview with Wharton Business Daily, the speaker emphasized the importance of considering who is implementing AI technology, primarily businesses and retailers, who are motivated by improving their efficiency and ability to persuade consumers to invest in their products. She also highlighted the potential for concern when faced with numerous AI-equipped companies.
De La Rosa’s paper discusses the concept of “pain of payment,” a behavioral economics term referring to the negative emotions people experience when they spend money and lose financial resources. It suggests that consumers tend to prioritize cash purchases over credit card purchases, but general AI tools are designed to encourage spending with simple clicks or taps.
De La Rosa suggests that by disassociating the loss of monetary resources from the act of paying, we reduce the pain of payment, leading to increased spending and a higher likelihood of purchasing.
Simulating the Impact of AI on Financial Decision-Making
In order to investigate how AI impacts the marketplace and consumer decision-making, De La Rosa and co-author Christopher Bechler, a marketing professor at the University of Notre Dame’s Mendoza School of Business, provide a framework in the article that they term the AI-IMPACT model. They identify four distinct pathways:
- Access: By lessening prejudice and discrimination, algorithms can benefit customers and make loans more accessible to marginalized groups. Algorithms have the potential to worsen prejudice and further complicate financial inclusion for marginalized individuals.
- Personalization: AI can assist businesses in providing customers with customized options, such as reduced costs for loyal clients. Although optimized personalization could appear to be beneficial, the professors warn that it will increase overall consumer spending, which may result in a decline in financial well-being.
- Flexibility: AI enables businesses to be adaptable with regard to their points of sale, pricing, and payment options. All of these lower expenditure barriers.
- Automation: AI assists customers in automating a large number of their investment and spending choices, which over time may result in a decline in financial literacy as people stop making decisions for themselves. Larger-scale job losses brought on by automation will have an impact on earnings and consumption.
De La Rosa, a human being, is concerned about the potential impact of AI on people’s money and spending habits. She believes that further research is needed to understand how AI is reshaping consumer behavior and suggests that public-private partnerships could be crucial in addressing these challenges, as few entities are designed to safeguard financial well-being.
