• by Ray Schultz , Columnist, December 13, 2022

Consumers prefer to receive good news from live people — say, approval of loan applications and higher membership status. But they’re not as happy when an algorithm comes to the same conclusion, according to a Wharton study.  

Wharton marketing professor Stefano Puntoni and his colleagues found that “customers are happiest when they receive a positive decision from a person, less happy when the positive decision is made by an algorithm, and equally unhappy with both man and machine when the news is bad,” Angie Basiouny writes in Knowledge at Wharton.  

That seems odd, given that credit approvals and other such notices are often sent by postal mail. Both letters—and phone calls—are driven by algorithms.  

But Basiouny adds that, when “a company representative greenlights a request, customers attribute that to their own exemplary behavior, social status, excellent credit score, or other value-adds to the firm. That’s harder to do when the decision-maker is a bot.”

But there’s another side to this.  

“When they get negative news, the story is different,” Puntoni said in a Sirius XM interview. “Then we find that customers blame the decision-maker for why they did not get what they wanted. In that case, they will do so no matter who or what made the decision. They just use different strategies to externalize the outcome.” 

Presumably, they also don’t like getting a rejection via an algorithm-driven email. Nor are they likely welcome email dunning notices,  although they might prefer them to live collection calls. 

The Wharton paper, “Thumbs Up or Down: Consumer Reactions to Decisions by Algorithms Versus Humans,” was published in the August edition of the Journal of Marketing Research. 

“Our research context is of managerial importance,” the authors wrote, noting that their findings go against the conventional belief that bots are bad for business. As companies increasingly deploy algorithms to streamline tasks, drive down costs, and increase efficiency, managers increasingly worry that using algorithms will alienate customers.

Puntoni also pointed out a bit of irony in the findings: “If you think about it for a second, algorithms are expected to be more objective and more unbiased than humans. So, if algorithms say you deserve it, maybe [that is] an even better inference you could make about yourself. But we don’t find people thinking like that. They just react more positively to a human giving good news than an algorithm.”

The co-authors of the study are Gizem Yalcin, marketing professor at the University of Texas at Austin; Sarah Lim, business administration professor at the University of Illinois Urbana-Champaign’s Gies College of Business; and Stijn M.J. van Osselaer, marketing professor at Cornell University’s Samuel Curtis Johnson Graduate School of Management.