Personal finance

Testing 1,000 synthetically generated client profiles against AI chatbots for investment advice, Prof. Andrew Lo and Research Affiliate Jillian Ross identified “heuristic collapse,” where chatbots based their recommendations almost entirely on self-reported risk tolerance, while ignoring income and other variables, writes Damilola Esebame for The Street. “Lo has recommended that investors use chatbots for orientation, leveraging them to frame questions, map out available options, and prepare for conversations with a human advisor rather than treating the output as a finished plan,” notes Esebame. 

Mel Robbins visits the MIT AgeLab and tries out the lab’s Age Gain Now Empathy System (AGNES) suit, which is designed to help wearers experience the challenges associated with aging. “When we think about aging, most people don’t really have a definition of it. They think about it as a number of birthdays—that's older,” says Joseph Coughlin, AgeLab director. “Actually, aging is about diminishing capacity over time. So weightlifting is increasing your capacity—you're pushing out the clock. Learning something new keeps you cognitively well.” 

Prof. Christopher Knittel speaks with New York Times reporter Emmett Lindner about the likelihood that gas prices remain high after the U.S.-Iran framework deal is signed. “When prices are going up, consumers are very adamant about checking the prices of multiple gas stations,” says Knittel. “But when prices start to fall, they do that less, so gas stations can kind of get away with not lowering prices one for one with oil.”

In a Gizmodo article, reporter Ellyn Lapointe features a new study, co-authored by Prof. Christopher Knittel and Prof. Catherine Wolfram, that reveals American households are spending an additional $400 to $900 per year due to extreme weather conditions. “U.S. households are experiencing the financial effects of climate change in ways that aren’t always obvious,” says Knittel. “These costs show up across different parts of people’s budgets, and over time they can become pretty significant.”

Time reporter Simmone Shah highlights a study co-authored by Prof. Christopher Knittel and Prof. Catherine Wolfram that reveals extreme weather caused by climate change is costing Americans an average of $400 and $900 a year. “Even if you don't live in tornado alley, you might be seeing your insurance rates go up to cover the cost for people who are in the more danger-prone areas,” says Wolfram.

Joseph Coughlin, director of the MIT AgeLab, speaks with Wall Street Journal reporter Clare Ansberry about how the baby boomers are shaping and transforming the future of aging. “They are reinventing old age,” he notes. Coughlin adds: “If you don’t have expectations of getting better, then you simply become satisfied with what is.” 

Prof. Andrew Lo speaks with CNBC reporter Greg Iacurci about using AI systems for financial planning and advice. “The problem that we have to solve is not whether AI has enough expertise. The answer right now is, clearly, AI has the [financial] expertise,” says Lo. “What they don’t have is that fiduciary duty. They don’t have the ability to suffer consequences if they make a mistake to the same degree that a human advisor does.”

Researchers at MIT and elsewhere have found that “one in five couples could boost retirement savings by reallocating contributions,” reports Caroline Castrollon for Forbes. “There are pretty large gains to coordinating your finances,” explains Prof. Taha Choukhmane. “We find that couples leave quite a lot of money on the table every year.”

In an article for Forbes, Joseph Coughlin, director of the MIT AgeLab, emphasizes that: “Retirement planning can no longer be framed solely as a question of how much to save or how to invest. It must also account for how to live in a world where stability is less certain, shocks arrive in close succession, and the systems that underpin daily life — energy, supply chains, and healthcare — are more exposed to disruption than the standard retirement playbook assumed.”

A study by Prof. Taha Choukhmane and his colleagues has found that “by switching retirement contributions to the account with the higher match rate, 1 in 5 couples could increase their savings by an estimated $750 per year,” reports Lorie Konish for CNBC. “The absence of coordination can be a choice, but it’s a costly choice,” says Choukhmane. 

More than 40% of employer matches go to the richest 20% of workers, according to a new report on retirement savings. Marketplace’s Caleigh Wells interviews finance experts, including Prof. Taha Choukhmane, who says white employees tend to benefit most, “whereas those who are single parents of kids, those who are Black or Hispanic, those who have lower-income parents tend to contribute less and make less in these matching contributions.”

TechCrunch reporters Christine Hall, Anita Ramaswamy, Connie Loizos and Mary Ann Azevedo spotlight Sribuu, an AI-powered personal financial advisor in Indonesia, co-founded by Nadia Amalia ’20. The company is aimed at helping “users make better money decisions with our wealth management tools and give personalized saving advice based on their financial habits,” they write.

Writing for The New York Times, Prof. Amy Finkelstein makes the case that cash transfers can do more to help the poor than expanding health insurance. “Cash helps recipients directly, while health insurance would pay mainly for care that many uninsured people were already receiving at low or no cost,” writes Finkelstein.

As part of a SHOOKtalks session, Joseph Coughlin, director of the AgeLab, discusses how the pandemic has altered the way financial advisors work with clients, reports R.J. Shook for Forbes.  “The one thing COVID did is it pushed technology into our lives,” says Coughlin. “It is not a novelty. COVID showed us that technology actually adds new value.”