Cognitive Compliance and Algorithmic Trust: An Empirical Investigation of AI-Driven Risk Mitigation among Retail Investors in Pune's Equity Market

Abstract

The integration of Artificial Intelligence (AI) in financial markets has significantly transformed retail investment behavior. This study examines the effectiveness of AI-driven tools in enhancing risk mitigation and fostering cognitive compliance among retail investors in Pune. Cognitive compliance refers to the extent to which investors align their decision-making behavior with AI-generated recommendations. The study is based on primary data collected from 500 respondents using a structured questionnaire. Statistical tools such as Chi-square, One-Way ANOVA, Pearson correlation, and multiple regression analysis were applied. The results indicate that AI adoption improves risk-adjusted returns by approximately 15% and reduces emotional trading by 22%. However, a persistent trust gap exists during periods of high market volatility. The study contributes by integrating behavioral finance with AI adoption and offers practical implications for regulators and financial institutions.

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