A robot can drive you to work, but can it advise you on your finances?

LOThe founding father of artificial intelligence Marvin Minsky once said that his ultimate goal was not so much to build a computer he could be proud of as to build one that would be proud of him. MIT Sloan Professor Andrew Lo mentioned this anecdote in a recent piece about financial advisers in The Wall Street Journal. In essence, he poses the question: Can a robot do the job?

Lo says that while tech-savvy millennials would be just as happy interacting with an app as with a human adviser, robo advisers can’t take into account the emotion of investors. “When the stock market roils, investors freak out,” Lo explains. “They need comfort and encouragement.” During the recent stock-market rout, he notes that Vanguard Group was so besieged with calls from jittery investors it had to pull staff from across the company to handle the call volume. “Investing is an emotional process,” Lo says, and “robo advisers don’t do emotion.” At least not right now.

Integrating human feeling into the digital advising process is probably the greatest challenge of financial technology. Lo likens the present state of digital financial advising to a rotary phone in an iPhone world. He points out that investing is much more complex and nuanced than tasks like driving, “which is why driverless cars are already more successful than even the best robo advisers.”

Putting your portfolio on cruise control

But what if? What if a digital adviser could actually identify the precise moment you panic and encourage you not to sell by giving you historical context that calms your nerves? Lo wonders. “Better yet, what if this digital adviser could actively manage the risk of your portfolio so you don’t freak out at all?”

Lo imagines a time when we can digitally record our preferred level of risk, similar to setting a car’s cruise control. Our robo adviser will apply the brakes when our finances start going downhill and step on the gas when we’re headed uphill so as to maintain that level of risk. “And if you do decide to temporarily take over by stepping on the brakes,” he says, “the robo adviser will remind you that you need to step on the gas if you want to reach your destination in the time allotted.”

So what’s blocking the progress of the robo adviser of today? “Instead of artificial intelligence,” Lo says, “we should first conquer artificial emotion—by constructing algorithms that accurately capture human behavior, we can build countermeasures to protect us from ourselves.”

Once that feat is achieved, Lo believes robo advisers will have great potential. Riffing off Minsky’s remark about building a computer that could be proud of him, Lo asks, tongue firmly in cheek, “Wouldn’t it be grand if we built a robo adviser that could be proud of our portfolio?”

Read the full story in the Wall Street Journal.