What is it about?
This paper explores how roboadvisors—automated financial platforms that manage investments using algorithms—are changing the way people invest. These platforms use a strategy called Modern Portfolio Theory (MPT) to build passive, diversified portfolios that aim to minimize risk and maximize returns. The study reveals how roboadvisors discipline users by encouraging them to “set it and forget it,” reducing the emotional and cognitive mistakes that often lead investors astray. The research highlights how roboadvisors target lay investors, including people with little financial knowledge or limited wealth, and turn them into passive participants in the market. By automating investment decisions and discouraging tinkering, roboadvisors help users achieve better outcomes. However, this reliance on algorithms raises important questions about control, trust, and the broader impact of passive investing on financial markets.
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Why is it important?
This paper is unique because it goes beyond the technical aspects of roboadvisors to examine their social and behavioral implications. It shows how these platforms don’t just manage money—they actively shape the behavior and mindset of their users. By analyzing how roboadvisors use technology to enforce rationality and discipline, the study connects finance with broader sociological questions about agency and governance. It’s timely because roboadvisors-and fintech more broadly-are growing rapidly, especially among younger and less affluent populations. As they become a dominant force in personal finance, understanding their influence on investors and markets is crucial for regulators, financial professionals, and everyday users.
Perspectives
Roboadvisors are often marketed as tools for financial empowerment, but they do much more than simplify investing—they reframe how we think about money and decision-making. By promoting a hands-off approach, they help people avoid common investing mistakes, but they also limit users’ control and understanding of their own portfolios. I was especially struck by the idea that roboadvisors enforce “passive rationality.” Unlike traditional advisors who might educate clients about their decisions, roboadvisors streamline everything, turning investing into a largely automated process. This has clear benefits—like reducing emotional errors—but it also risks creating a generation of investors who are disconnected from the logic behind their financial choices. For me, this research is a powerful reminder of how technology doesn’t just solve problems—it transforms the way we engage with the world. As roboadvisors continue to grow, we need to think carefully about the balance between efficiency and education, and about what we gain and lose when algorithms take the reins in personal finance.
Dr. Adam Hayes
University of Lucerne
Read the Original
This page is a summary of: The active construction of passive investors: roboadvisors and algorithmic ‘low-finance’, Socio-Economic Review, October 2019, Oxford University Press (OUP),
DOI: 10.1093/ser/mwz046.
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