The Dark Side of Artificial Intelligence in Finance: Measuring the Negative Impacts of Blind AI Adoption on Investor Decision-Making

International Journal of Financial Innovations & Risk Management (IJFIRM)
2025 – Volume 1 – Issue 1 – Pages 136–162

Authors:

Ahmed Ali

COMSATS University, Islamabad, Pakistan

Abstract

Artificial intelligence (AI) has become an essential tool in modern finance, shaping how investors evaluate risks, manage portfolios, and respond to market fluctuations. While its efficiency, speed, and predictive power have been widely celebrated, the blind adoption of AI presents significant challenges to investor decision-making. This study explores the negative impacts of over-reliance on AI-driven systems, particularly the risks of technical failures, panic-driven behavior, algorithmic biases, and the illusion of rationality that may distort investor perceptions. Using data from a survey of 500 investors and analyzed with SPSS regression models, the findings reveal that reliance on AI significantly shapes investor decisions. At the same time, concerns about technical failure remain the dominant factor influencing trust and comparative judgment. Surprisingly, perceptions of “reasonable” AI reduce investor confidence, suggesting skepticism toward overly human-like rationality in automated systems. The results highlight the paradox of AI adoption in finance: while investors increasingly depend on its predictive capabilities, they remain deeply concerned about hidden risks, lack of transparency, and potential behavioral distortions. This research contributes to the growing body of literature on the dark side of AI by emphasizing the need for safeguards, regulatory oversight, and investor education. By identifying the adverse consequences of blind AI adoption, this study underscores the importance of balanced integration—where technological innovation is matched with ethical governance and critical awareness.

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