Retail Investor Behavior during AI-Driven Market Narratives: FOMO, Overconfidence, and Risk Taking

Abstract

In the present study, the attitudes of the retail investors are analyzed in the market when AI-generated narratives are presented, particularly FOMO, overconfidence, and risk-taking. The implications of this integration of artificial intelligence into financial markets are a hot topic that has been brought to the attention of retail investors in a number of ways, including news, social media, analyst commentary, and online investment communities. These stories can affect the investors' minds and raise their expectations on positive results, especially in investments pertaining to tech and AI. This research looks at how investor feelings about the AI market and the impact of exposure to market narratives through AI news are influencing investor confidence in trading, portfolio concentration, and financial risk-taking. The results suggest that greater exposure to AI-related stories is correlated with higher FOMO scores, as well as higher confidence in one's own investment abilities and more frequent trading and investment allocation towards speculative or high-growth investments. The results also suggest that an overconfident mindset strengthens the relationship between the exposure to AI narratives and risk-taking behavior, while FOMO serves as an intermediate step between market narratives and retail trading activities. The paper ends with the conclusion that market narratives created by AI could be behavioral risks and opportunities for retail investors. In the frenzy of the technology-infused market, financial education, risk awareness, and proper and balanced disclosure are necessary to allow investors to make more rational choices.