Research Highlight

How Do Customers React When Their Requests Are Evaluated by Algorithms?

Research shows that when it comes to anticipating how customers will react to algorithmic decisions, managers’ intuition is often wrong.

Gizem Yalcin, Sarah Lim, Stefano Puntoni, and Stijn M.J. van Osselaer Reading Time: 5 min 

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We are living in the age of algorithms. These formulas govern decisions across all parts of life and have allowed companies to become more customer-oriented and profitable — think Netflix’s subscriber-friendly personalization, or the daily purchases attributed to Amazon’s vast recommendation engine. But what happens when algorithms are used to evaluate customers?

Companies are increasingly adopting algorithms to evaluate information provided by customers and make favorable or unfavorable decisions about them. For example, Raya, the private dating and networking app, uses algorithms to decide which applicants to admit as new members, while Zendrive evaluates customers’ driving skills to determine their car insurance premiums, and the global financial institution ING uses algorithms to make decisions about loan applications.

The prevalence of algorithms in customer-facing decisions raises an interesting set of questions about how customers react to personally relevant decisions taken by algorithms versus humans. For instance, would customers evaluate a bank differently depending on whether their loan application was accepted by a loan algorithm versus a loan officer? And what if their request was instead rejected? Understanding the impact of customer reactions can help managers make better decisions about when and how to deploy algorithms in customer-facing functions. We conducted a series of studies that showed that managers’ intuitions about this issue are frequently wrong.

Customer Reactions to Decisions by Algorithms Versus Humans

To learn more about how managers think about the effects of algorithms in customer-facing decisions, we first conducted a series of in-depth interviews and a survey with managers from different industries. We asked managers how they thought customers would react to being accepted or rejected by algorithms or humans. Most managers expected that customers would react less positively to being rejected by algorithms but react similarly to being accepted by algorithms versus humans. However, the data we gathered on customer reactions told a very different story.

In fact, our research revealed a pattern of results that is the exact opposite of the intuition of the managers we surveyed. We investigated customer reactions to favorable and unfavorable decisions made by algorithms versus humans across diverse contexts, such as loan and membership applications.

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About the Authors

Gizem Yalcin is a Ph.D. candidate at Erasmus University and an incoming assistant professor at the McCombs School of Business at the University of Texas at Austin. Sarah Lim is an assistant professor of business administration at Gies College of Business at the University of Illinois Urbana-Champaign. Stefano Puntoni is a professor of marketing at the Rotterdam School of Management at Erasmus University and the director of the Psychology of AI lab at the Erasmus Centre for Data Analytics. Stijn M.J. van Osselaer is the S.C. Johnson Professor of Marketing at the Johnson Graduate School of Management at Cornell University.

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Comment (1)
James Puzar
I have an experience with an auto parts store. I wrote a review for one of their products and it got rejected. The algorithm for some reason came back and said my review did not meet their standards. I have no clue what that meant. I complained and the customer service person came back and told me it was an automated response, and there is nothing he can do about my review. I guess I can say I was negatively affected by an algorithm.