Bridging the Intention-Action Gap: Machine Learning Solutions for Irrational Decision-Making in Sustainable Finance
Year: 2025
Type: article
Abstract: This study examines the intersection of behavioral finance, artificial intelligence, and sustainable investing, focusing on how cognitive biases impede optimal Environmental, Social, and Governance (ESG) investment decisions and how AI-driven solutions can address these psychological barriers. The research reveals that traditional behavioral finance biases including loss aversion, confirmation bias, herding behavior, and overconfidence significantly influence investor decision-making in sustainable finance contexts, often leading to suboptimal long-term investment outcomes despite growing awareness of ESG principles. Through comprehensive analysis of AI applications in sustainable investing, this study demonstrates how machine learning algorithms, natural language processing (NLP), and predictive analytics can counteract cognitive biases by providing objective, data-driven insights. Key findings indicate that AI-powered platforms like BlackRock's Aladdin and Sustainalytics' ESG Risk Ratings successfully reduce behavioral biases by offering transparent, standardized ESG assessments that minimize reliance on intuitive decision-making prone to psychological distortions.
Author: Arindam Nag
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7081140980
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