Algorithm appreciation causes stock traders to follow a computer's suggestion even when it directly contradicts obvious market indicators.
April 25, 2026
Original Paper
The Cost of Algorithm Appreciation: An Experimental Study on Financial Over reliance and Decision-Making in AI-Assisted Trading
SSRN · 6359882
The Takeaway
The Overreliance Premium is a psychological trap where humans trust algorithms more than their own hard-won professional expertise. This study tracked traders and found that those using AI often suffered net losses because they ignored fundamental data in favor of a machine's prompt. Following an algorithm blindly causes professional skills to decay as the person stops doing the mental work themselves. People used to assume that AI would be a co-pilot that enhances human performance. This finding suggests that without strict boundaries, the machine becomes a crutch that eventually leads to worse decisions and financial ruin.
From the abstract
The paper seeks to examine the economic implications of the concept of 'algorithm appreciation' in the high-frequency world of financial trading systems. While the recent literature establishes the basic human inclination to prefer the advice given by algorithms, the economic cost of over reliance, especially during periods of market anomaly, is an area that is under-explored. The paper presents the results of a controlled behavioral experiment in which human subjects were asked to make trades i