Robo-advice may play a useful role in helping borrowers, particularly vulnerable households, make the best decisions about which loan repayments to prioritise.
Summary
This paper explains the results from a robo-advice experiment that asked consumers to make hypothetical borrower repayment decisions. It finds:
- Access to free robo-advice significantly improves repayment decisions.
- The average willingness to pay for robo-advice is actually higher than the interest and fees it saves borrowers, suggesting a significant mental cost to making repayment decisions.
- Consumers learn little from using robo-advice, even when provided with explanations. As a result, borrowers are likely to need repeated access to robo-advising tools for decisions to be improved on an ongoing basis.
Authors
Ida Chak, Karen Croxson, Francesco D’Acunto, Jonathan Reuter, Alberto Rossi and Jonathan Shaw
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