on May 10, 2022
Be careful when faced with the gamification techniques that many investment platforms are utilizing. Such techniques include stock price notifications, headlines that evoke a “fear of missing out” (FOMO) reaction, or user interfaces that psychologically encourage trading. The list of gamification examples is extensive, but experts notice that with the growing number of financial apps that make it easier for beginners to trade regardless of financial literacy or market knowledge, gamification leads to riskier decisions.
Investing is growing in usability and accessibility, particularly for younger investors, thanks to apps and websites. Platforms that specialize in simplifying trade can fall into the same gamification tactics that hook in users living in an era of Candy Crush, Animal Crossing, and other collect-and-trade games.
Traders using apps may find classic rewards or celebration animations, like notifications on trending stocks or Robinhood’s former confetti feature that would show up after a trade. Such features can encourage a competitive mindset toward trading. At worst, their reward features erode the user’s decision-making skills by enforcing the dangerous idea that any trade is a good trade.
Some gamification techniques can be more substantial. As reported by Finmasters, Coinbase sent users emails that promoted a $500,000 sweepstakes prize eligible for anyone executing a trade of at least $100. While this may seem more extreme, the gamification techniques of rewarding and incentivizing trades, regardless of their risk, are still the same.
While gamification techniques might not always be avoidable, their impact can be easily reduced. Financial Planning reports on a study conducted by the University of Toronto’s assistant professor of finance Marius Zoican, in which a quiz on financial literacy found that “a one-standard deviation increase on the quiz score led to a 56% reduction in the impact of gamification.” More simply put, gamification influences traders less when they’re more knowledgeable about investing.
In addition to education, apps can refine their techniques, especially regarding riskier investments. As Forbes writer Ben Soppitt suggests, “Regulatory oversight and legal structures similar to what we have in gambling” and actions “holding companies offering [investing] services accountable” can be implemented.
While it can be akin to gambling, investing doesn’t compare to the likes of slot machines and card games. Investing involves long-term risks and can benefit one’s financial future if done wisely. Luckily, there are many easily-accessible financial education resources available, from books and podcasts to investment coaches and financial advisors that can mitigate trading risks.
It’s always best to feel comfortable with investing, but our understanding of “comfort” or “safety” can, unfortunately, be muddled by gamification techniques that undermine the risk perception. While gamification techniques likely won’t stop anytime soon, the effects they create are under your control.
By being aware of their incentives, educating yourself on investing options, working with a financial advisor, and being honest about your financial situation and risk assessment, you can be more prepared in the face of gamification. Investing can be rewarding – if done right.