Can ChatGPT Plan Your Retirement?

Planning for retirement is super important, and knowing about different ways to invest your money can really help. Recently, at a seminar, three different investment choices were discussed, each with its own level of risk and reward.

Let’s dive into what these options are and how they can impact your retirement planning.

Different Investment Choices: What Are the Risks?

Here are the three investment options:

1. Option A: You get a guaranteed return of $250,000. No risk here!

2. Option B: There’s a 75% chance you could lose $1 million or break even, but the expected return is still $250,000.

3. Option C: You definitely lose $750,000. Ouch!

Most people gravitate towards the safest option, Option A, because who doesn’t like a sure thing? A few might pick Option B, showing they’re okay with taking a big risk. But here’s a surprise: combining Options A and another option (let’s call it Option D) could actually give you a better return than Option B. This could make you rethink your choices!

Why We Hate Losing Money: Loss Aversion and the “Freak Out Factor”

Let’s talk about something called loss aversion. This means people hate losing money more than they like gaining the same amount. This can make us act a bit irrationally with our finances. For example, during a market downturn, many people panic and move their money to cash to avoid losses. This is called the “freak out factor,” and it can mean missing out when the market goes back up.

While loss aversion can lead to bad financial decisions, it also gives financial institutions a chance to help by offering better advice. But there’s a catch – the advice needs to be ethical and in your best interest.

Can AI Help with Financial Advice?

With the rise of artificial intelligence, large language models (like the ones behind chatbots) can provide personalized financial advice. These models can look at tons of data to give advice that matches your goals and how much risk you can handle. However, there are concerns about how trustworthy and ethical these AI advisors are. They need to act in a way that’s similar to human financial advisors, always putting your best interests first.

Learning from the “Ultimate Game”

Imagine you’re playing the “ultimate game,” where one person offers to split a fixed amount of money with another person. This game helps us understand fairness and negotiation. If you were the volunteer at a seminar playing this game, you might get a small portion of the money, showing how people often reject unfair deals even if it means losing out.

These insights can help make AI-driven financial advice more human-like and trustworthy. If AI understands human behavior better, it can give advice that feels fair and reasonable.

Finding the Right Balance

Exploring different investment options and understanding human behavior in financial decisions can help you make better choices. While the safest option might seem the best, knowing the benefits of higher-risk options is important for a balanced investment strategy. And as AI technology evolves, combining human insights with AI capabilities could lead to better retirement planning.

By understanding loss aversion and the “freak out factor,” and ensuring ethical AI practices, you can feel more confident and secure in your retirement planning journey.

To Growth, Family, & Philanthropy,

Joshua Krafchick | 369 Financial

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