The controversial Gamification in investment apps

According to studies, the gamification of stock trading and investment apps can confuse the investor and promote gambling-like behavior, encouraging investors to take more risks.

Trading apps allow investors to directly and easily trade various products, including stocks and high-risk investments such as crypto assets.

Several regulatory authorities are concerned about the gamification of investment apps and their role in engaging consumers for rushed decisions.

Many finance applications have behavioral design tools, and these practices can limit people from making decisions in their best interest.

For example, after a negotiation, a commemorative message is displayed, and confetti falls, celebrating that transaction. Even points, badges, and rewards for taking on specific behaviors, and leaderboards that rank people based on those rewards.

Regulatory bodies worldwide are warning stock trading app operators to review design features, including those with game-like elements, which risk leading an investor to take action against their own best interests.

The Ontario Securities Commission (OSC) partnered with the Behavioral Insights Team to conduct a behavioral study on how digital investment platforms can influence investor decisions in a way that impacts the bottom line – both positively and negatively.

They conducted a randomized controlled trial in which 2,430 participants were given $10,000 in play money to buy and sell stocks in a simulated digital trading environment. The experiment evaluated the impact of two common tactics on investment behavior.

Giving investors points for buying or selling stocks — a gamification technique.
For example, showing investors a list of the top stocks traded.

The report describes a taxonomy of gamification and other behavioral techniques currently employed or highly relevant to investing and their possible implications for investor behavior. Some essential gamification techniques were examined in the experiment, such as:

Leaderboards;
Rewards (such as points, badges, scores);
Goals and progress;

Other behavioral techniques were examined: attention-inducing alerts, selective simplification of friction costs, social interactions, and social norms. These behavioral and gamification techniques are called Digital Engagement Practices (DEPs).

The US SEC defines DEPs as "the tools, including behavioral techniques, differential marketing, gamification, design elements or design features that intentionally or unintentionally engage retail investors in digital platforms, as well as analytical and technological tools and methods." Gamification techniques are a subset of behavioral techniques; DEPs are a superset of both.

Key findings from the experiment reveal that participants who were rewarded with points made nearly 40% more trades than participants who were exposed to the same trading simulation but did not receive any points.

The most traded list technique used in the experiment also reveals that participants who saw that list were 14% more likely to trade the stocks listed at the top. This finding suggests that showing investors a list of top trades can affect their trading decisions.

The agency says its gamification experiment and report are not exhaustive in identifying how gamification and other behavioral techniques are used on investment platforms today.

The OSC says that improving the experience and expanding investor protection is its priority and hopes that platforms will use the knowledge revealed by the gamification experiment to focus on techniques that support good outcomes for investors.

In conclusion, gamification can be a force for good, helping to improve children's financial education and leading users to adopt healthier habits. But its potentially addictive nature can be harmful, especially when linked to potential consumer losses.