‘Gamified’ apps push DIY traders to make riskier investments: Study

TORONTO — The “meme stock” phenomenon of early 2021, which saw social media-based investors push back against Wall Street by piling into stocks such as GameStop and BlackBerry, gave Marius Zoican an idea. 

As the mobile trading app Robinhood was the platform of choice for the meme stock movement, the assistant professor of finance at the University of Toronto wondered how much of a role “gamified” apps played in risky behaviour among retail traders. 

So Zoican, along with fellow researchers Philipp Chapkovski and Mariana Khapko, conducted a study comparing how investors behaved on gamified apps, which feature game design elements, versus standard trading apps. 

Participants were assigned to either a simple trading app, or a gamified app that mimicked features found on existing platforms, such as bursts of confetti after a trade, animations and other prompts, Zoican said. 

Participants, on average, were 31 or 32 years old, in line with the demographic who typically use commission-free trading apps, he added.

The study, published in December, discovered that investors using gamified trading apps took on more risk, especially when trading high-volatility assets. 

“They’re more likely to gamble their money away and this effect is even stronger if we give them more risky securities to trade,” Zoican said. 

While Robinhood is not available in Canada, elements of gamification are finding their way into Canadian apps, Zoican said. 

For example, Wealthsimple offers free stock bonuses of anywhere from $5 to $4,500 to onboard new investors, Zoican said. 

“In my view, that’s not the mindset that you want to push on younger traders. It’s like this is a casino and if you’re lucky, you can get Amazon (shares). It really sort of reinforces the idea that you’re entering into a universe where it’s OK to gamble.”

Syd Morgan, a 24-year-old communications officer in Sudbury, Ont., said the free stock bonus, in addition to the fact that Wealthsimple Trade doesn’t require a minimum to invest, is what motivated her to sign up for the platform. 

She received two free stocks valued at $8.23 and $6.21, respectively. One was gained using a referral code and the other was an unexpected surprise. 

“The free stocks gave me the incentive to use the app because of the element of surprise. Like, which stock will I get and how much will it be worth?” she said.

“It somewhat felt like winning when I got the first stock because I wasn’t expecting it.”

However, she doesn’t think it prompted her to take on more risk while investing. 

Wealthsimple did not respond to multiple requests for comment. 

The free stock lottery is a milder form of gamification because it only applies to new traders rather than day-to-day activity, Zoican said. 

He added that due to tighter regulations, trading apps in Canada don’t have the incentive to nudge investors into making frequent trades.

Apps offered on a mobile-only basis can also affect investor behaviour, Zoican said. 

“When people are making decisions on their phone, they’re likely to think about it in a much more casual manner. They’re not really thinking, ‘I’m doing serious business here’ (compared to using their desktop).”

Zoican said he was happy to see Wealthsimple, which started as a mobile-only platform, eventually create a desktop version.

However, not all apps plan to offer both versions. 

Toronto-Dominion Bank launched a new stock trading app on Monday called TD Easy Trade that will only be available on mobile.

Tony Ierullo, vice president of New to Investing and Emerging Investor Solutions at TD Direct Investing, said he doesn’t have any concerns that it might encourage a more casual attitude among investors. 

“We developed TD Easy Trade based on client feedback to appeal to an emerging and fast-paced growing client base who want to invest through mobile,” he said.

“Many of these clients are younger and grew up in a digital world with a digital mindset, and when it comes to investing, they are looking for a solution that is easy-to-use, streamlined and in plain language — and something they can do from the palm of their hand.”

In terms of countering the negative effects of gamification, improved financial literacy appears to be the answer.

In Zoican’s study, participants were asked to complete a financial literacy quiz after the experiment took place. The results showed that the more financial literacy someone had, the less they were swayed by gamification. 

“When people are more financially literate and know something about the world of investing, gamification actually doesn’t nudge them very much. The effect is dropped by more than half,” Zoican said. 

Zoican advises new traders to start with low cost, low risk asset classes, such as ETFs — or to use a robo-adviser — and then gradually take on greater risk once they’re more familiar and comfortable with investing and complex assets. 

“Some traders might decide that index funds and robo-adviser products are the right fit for them and that’s perfectly fine too,” he said.  

This report by The Canadian Press was first published Jan. 18, 2022.

Leah Golob, The Canadian Press