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Author: Marius Zoican, Associate Professor of Finance, University of Calgary
Original article: https://theconversation.com/gamified-investing-apps-are-becoming-more-popular-but-can-be-risky-for-young-investors-243442
Gamification is rapidly reshaping how people consume information and engage with the world. It uses strategies such as clear goals, instant rewards and engaging visuals to make everyday tasks more enjoyable, often in a digital setting.
The COVID-19 pandemic nudged consumers to embrace no-contact, instant gratification experiences in an increasingly digital world.
Businesses found that gamification attracts new customers while keeping the existing ones engaged. As evidenced by the meteoric rise of the Robinhood investment app, even trading platforms haven’t been able to escape the pull of gamification.
While trading gamification attracts new and younger investors to financial markets, a key question arises: do digital engagement strategies shape investor behaviour?
Flashy features and poor financial decisions
In recent years, fierce competition among online brokers has pushed them to stand out with features beyond lower fees. To boost trading activity, many brokers have implemented gamified features ranging from vibrant colours and celebratory animations, to social ranking boards and frequent price alerts.
My recent research shows that these strategies are particularly effective for new investors with lower financial literacy. While it’s effective at attracting users, gamification can lead inexperienced traders to make poor decisions by magnifying their behavioural biases.
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My co-researchers and I studied the effect of gamification on retail traders’ behaviour using a randomized online experiment. The results echo the widespread concerns that gamification fuels investors’ competitive instincts and their urge to “hit big.” Turning trading into a casino-like experience encourages reckless decision-making.
Infamous long-term investor Warren Buffett has also expressed concerns about the potential negative impact of “instant gratification” on investor behaviour. He believes that “too many modern investors have become entranced by speculative investing” and are “simply buying stocks that are trendy.”
While it’s important to introduce the younger generation to financial markets, Buffett’s warning resonates at a deeper level. Is the increasingly gamified trading environment equipping new investors with the skills and confidence to build a strong financial future, or is it designed to exploit their weaknesses?
And ultimately, how can technology be leveraged to build a healthier, more sustainable economy?
Who benefits from financial literacy?
My co-researchers and I argue that both retail investors and intermediaries ultimately benefit from boosting financial literacy from an early age — that is, before plunging into the wild waters of financial markets.
Ultimately, the responsibility lies with individual investors to take the initiative to understand the fundamentals of financial markets and risk management. By seeking out knowledge before entering markets, they can reduce their risk and become aware of their biases and blind spots.
Traders who don’t prioritize their education may end up learning the reality of markets the hard way — often through losses in post-mortem reflection.
At the same time, brokerages and trading platforms have both a profit-driven and an ethical stake in promoting financial literacy. Informed users are more likely to become loyal long-term customers who engage more deeply with platforms and trading responsibly over time. Financially literate traders benefit from gamification techniques like price notifications, which allow them to correct their mistakes faster.
From an ethical standpoint, financial institutions must reflect on whether they would rather empower a new generation of investors or merely turn them into gamblers.
Financial education is key
School systems’ improved or renewed efforts to empower students to navigate the economy safely and productively have received significant attention in light of both post-pandemic and inflationary economic challenges.
As students move up the education ladder, they could learn about more sophisticated financial products, such as leverage, derivatives or alternative investments.
Read more:
A back-to-school wish list for Ontario’s 2025 high school financial literacy requirement
However, the financial world is growing ever more complex with the inclusion of novel products such as cryptocurrencies and leveraged funds. Every investor faces — or will eventually face — unique financial challenges.
The real question is: how can we improve investors’ financial literacy at scale without expecting everyone to earn the equivalent of a business degree?
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AI and the future of financial education
This is where artificial intelligence (AI) comes in. AI is experiencing rapid growth and can adapt learning plans based on users’ existing knowledge, unique planning needs, learning pace and preferred engagement formats.
This adaptability makes AI a powerful tool for creating learning opportunities for investors by catering to varying learning needs.
Wide-scale collaboration among regulators, business educators and financial markets could lead to innovative programs using scalable, user-friendly tools such as chatbots. Such an approach would help improve financial literacy on a large scale and enable evidence-based policy by observing investor behaviour.
Improving financial literacy is urgent. As a new generation of traders enters gamified investing, they risk losing their savings due to poor decisions, behavioural biases and excessive trading. Early losses can stunt a generation’s future wealth prospects and set them back years, if not decades.
Only investors with strong critical thinking skills and self-control will progress from beginners to experienced traders and avoid falling prey to impulsive decisions.