A risk analysis on the gamification of trading applications

Abstract

In today's financial landscape, retail investors have emerged as a formidable presence, empowered by the democratization of finance through trading applications. While these platforms provide unprecedented access to financial markets, concerns persist regarding the utilization of certain features, collectively known as gamification elements, such as leaderboards, push notifications, points, badges, rewards, and social interaction features. These features are known to influence behavior significantly, yet their implications within trading applications raise critical questions. Motivated by these concerns, this study sought to assess the impact of leaderboards, a prominent gamification feature, on investors' decision-making. Additionally, it aimed to address the dearth of literature on the potential risks posed by gamified trading applications to both retail investors and the finance industry. To achieve these objectives, a mixed methodology approach was employed. Questionnaires were used to investigate the influence of leaderboards on investors' decisions empirically, and semi-structured interviews with finance professionals were conducted to unearth potential risks. The research findings revealed that when presented with an investment scenario, participants exposed to a leaderboard exhibited a statistically significant 18.29% greater likelihood, at a 95% confidence level, to invest in the top-ranked option on the leaderboard compared to a control group. The interviews with finance professionals underscored the potential risks associated with gamification, including a propensity for retail investors to engage in gamblinglike behavior rather than making informed investment decisions. Moreover, the finance industry itself may face risks, such as eroded trust and reduced access to capital markets. The researcher presents a set of recommendations to address these multifaceted risks, guiding both retail investors and the finance industry. Firstly, the researcher recommends that individuals should conduct thorough research before investing their money, seek reliable investment advice on social media platforms, and exercise patience, recognizing that investing is not a quick path to wealth. Secondly, the researcher advises trading platform providers to engage in ethical gamification practices that benefit both their companies and their users. Additionally, the researcher suggests that financial institutions and regulators should intensify their efforts to educate retail investors. Furthermore, the study highlights the existing research gap in the field of gamification and trading applications, encouraging further studies in this area. It is hoped that this research can serve as a foundational reference for future studies.