OSC Report: How Gamification Influences Retail Investors

December 16, 2022 FinTech and Alternative Finance, Fundraising, Investing, Trading, Innovation and Resources, Legal Issues, Regulation, Consultation, Research No comments

OSC | Nov 17, 2022

The Ontario Securities Commission (OSC) today published Staff Notice 11-796 Digital Engagement Practices in Retail Investing: Gamification and Other Behavioural Techniques about a study that examined the influence of gamification and other behavioural techniques on retail investor behaviour.

Tyler Fleming, Director of the Investor Office, OSC: It is easier now to start investing thanks to digital platforms, but those same platforms may influence retail investor decision-making in a way that impact outcomes — both positively and negatively. Our study examined and tested gamification and other behavioural techniques and their likely impact on retail investor behaviour.
Experiment: A randomized controlled trial, involving 2,430 participants were given $10,000 in play money to buy and sell stocks in a simulated, digital trading environment.

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Giving investors points for buying or selling stocks — a gamification technique.
- The experiment found participants who were rewarded with points for buying and selling stocks made 39% more trades than the control group even though the points had inconsequential economic value.
- Increasing the number of trades investors make is important because, on average, trading more frequently has a negative impact on investor returns. The concern that certain techniques may result in investors trading more is amplified given that low or no commission trading has reduced barriers to entry, and retail investors trading volumes have grown considerably.
Showing investors a list of top traded stocks — a combination of two other behavioural techniques (i.e., salience and social norms).
- Participants who saw a list of top trades were 14% more likely than the control group to buy and sell those top listed stocks.
- This suggests that showing participants a top traded list can affect their trading decisions, nudging them to buy and sell stocks on the list. This can result in herding — a behaviour where a person follows what others are doing rather than deciding independently.

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