A TFI research project by Joris Demmers, Benedict Dellaert and Kristian Rotaru
Many people have trouble understanding how to manage their money well, and how this affects their financial choices. Online support tools, like retirement planners or budgeting tools, can help people make better financial decisions. With the rise of machine learning and artificial intelligence in financial services, the support and advice provided by such online tools are getting more personally tailored to customers’ financial situations.
However, consumers are becoming more and more concerned about their privacy in relation to services that use artificial intelligence. These privacy concerns present a potential challenge for the quality of online support tools, as people may be reluctant to share complete and truthful information, crucial for getting adequate advice. Because the quality of personal information directly impacts the quality of the outcome of most financial support tools, it is important to understand the link between privacy concerns and the way consumers use financial support tools.
In this TFI research project, we conducted four experimental studies to investigate the impact of privacy concerns on consumers’ use of financial support tools. For these experiments, we developed three financial support tools: a savings calculator tool, a mortgage calculator tool and an investment advice tool.
Privacy Concerns Make Consumers Reluctant to Provide Personal Information
We first investigate how privacy concerns impact people’s willingness to fill out complete, accurate and truthful information when using online financial support tools. Our studies showed that perceived privacy risks make them less likely to fill out complete and truthful information. This was the case in various settings, with various privacy cues. In one study, the fear of a privacy breach made consumers less willing to share personal information with their bank. But two other studies showed that the privacy policies of financial support tool providers can similarly impact consumers’ willingness to provide complete and truthful information. All in all, it was clear that privacy risks have a detrimental effect on people’s willingness to provide complete and truthful information when using online financial support tools.
Consumers Are More Likely to Share Information in Personal Customer Environments
We also analyze whether personal customer environments could help mitigate consumers’ reluctance to provide complete and truthful information in online financial support tools. Personal customer environments are online portals through which customers can access and control their personal information and interactions with a company. These portals are secure websites, giving customers a single point of access to company information and transactions that are relevant to them, such as policies, invoices, deliveries, orders and online payments. Personal customer environments are now very common; 88% of American consumers expect companies to have a self-service support portal.
Our last two studies showed that, although consumers cognitively understand that personal online environments are associated with privacy risks, they disclose more complete and truthful information when filling out a financial support tool in a personal customer environment. We also showed that the detrimental effect disappears when consumers use a financial support tool within their personal customer environment. In other words, positioning financial support tools in their personal environments makes it more likely that the information consumers fill out is complete and truthful. Our results suggest that this is because personal customer environments have a calming effect on consumers, making them more willing to share personal information.
Risk Preferences
People in a good mood tend to view risky situations as less threatful. We analyze if consumers’ emotional response to privacy risks and personal environments can spill over to investment risk preferences. One of our studies showed that the negative emotions caused by a privacy breach can make consumers less willing to take risks with their investment – even though the risk profile associated with their investments was rationally unrelated to the privacy breach.
Another study showed that positive emotions triggered by a personal customer environment makes consumers inclined to take higher risks in their investment decisions. Again, investment risk preferences were objectively unrelated to the online environment of the investment advice tool. In sum, it was clear that the emotions evoked by privacy risks (negative) or personal customer environments (positive) can spill over to investment risk preferences.
Designing Financial Support Tools to Maximize Disclosure
Our research provides some important takeaways for the design of effective financial support tools. It is important to take measures to reduce the privacy risks perceived by consumers, as such risks may lead consumers to provide less complete or truthful information. Putting financial support tools in personal online customer environments is one way to overcome the negative impact of privacy risks. Most firms offering financial services already provide customers with online personal environments, increasing the functionality of their support tools.
Emotions Spilling Over to Risk Preferences
Providers of financial support tools also need to be aware that emotions (resulting from the way their tools are built) can alter their users’ risk preferences. Negative emotions, for example caused by privacy risks, can make consumers less willing to take investment risks. Positive emotions, for example caused by a personal customer environment, makes consumers more willing to take investment risks. Even though these changes would only be temporary, they could lead consumers to use biased risk preferences as input for a financial support tool. The tool would then incorporate these biased risk preferences into its customized output, leading to faulty advice.
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