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Trading: How the "gamification" of platforms can work against you

Virtual trophies and copy-trading tend to encourage amateur traders to take more risks, according to a study.

Reading Time : 1 minut(s) - | Published on 27-11-2023 10:29 

Men are more sensitive to trophies, women to mimicry

Trading platforms are proliferating and their methods sometimes resemble "gaming". Some offer trophies based on performance, while others suggest copying the strategies of investors with significant results. Do these practices influence investors' choices? It's likely, according to the results of an experiment conducted by the Experimental Economics Laboratory of the University of Strasbourg (LEES).

The study was carried out in spring 2023 with 366 students facing investment situations. The aim was to determine whether specific stimuli could influence the choice of securities and the degree of risk-taking. In front of a screen and isolated in a booth, participants were able to choose how to allocate their assets. Available were variously risky financial assets and the "copy trading" system, which involves automatically copying another investor's portfolio.

Researchers found that participants responded to the awarding of "virtual trophies", such as bronze, silver, gold or platinum medals. Subjects tended to adopt behaviors leading to reward, whether linked to risk-taking or cautious decision-making. The public or private nature of the trophy had no impact, suggesting a lack of social influence in this regard. Conversely, displaying motivational messages or congratulations, or certain symbols like confetti, had no notable effects.

When given the opportunity to copy the most successful investors' decisions through "copy-trading," 20% of participants chose this option. The study indicates that this procedure invariably encouraged risk-taking. The authors also underline that the technique was more popular among women, who were generally less responsive to elements of "gamification" than men.

Assurance Vie

The regulator is on the ball

The presence of these tools on some platforms should therefore heighten vigilance when investing. According to Marie-Hélène Broihanne, a tenured University Professor in Management Sciences who directed the study, they "are not neutral" on investor behaviors. "While gamification can be an effective educational tool for novice investors, it can also divert some investors from making rational financial decisions under the influence of emotional factors and certain forms of social pressure." Let's not forget that some platforms make more money when their clients invest in very risky products such as CFDs or cryptocurrencies.

One of the roles of the Autorité des Marchés Financiers (AMF) is to ensure that investors are clearly informed about the risks they are taking with their money. However, these findings highlight a potential mitigation of awareness, particularly among the less experienced. Will platform practices therefore soon be regulated? Perhaps. "This academic experience is particularly rich in lessons (...). Investing is not a game and 'gamification' should not make us forget the risks. The AMF is very attentive to this", explains Marie-Anne Barbat-Layani, the chairman of the institution.

Meanwhile, before investing, always step back and consider the risk of chosen assets relative to your budget and your projects.