OSC study finds gamification techniques influence retail investors

For Immediate Release OSC

TORONTO – 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.

The increase in digitalization of financial services has resulted in a wave of mobile-friendly investing platforms. Now retail investors in Canada, and around the world, have more options to participate in the markets. The use of digital engagement practices is of growing interest, as their intentional and unintentional misuse raise investor protection concerns.

“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,” said Tyler Fleming, Director of the Investor Office at the OSC. “Our study examined and tested gamification and other behavioural techniques and their likely impact on retail investor behaviour.”

A randomized controlled trial, involving 2,430 participants, assessed the impact of two different tactics on investing behaviour:

  • Giving investors points for buying or selling stocks — a gamification technique.
  • Showing investors a list of top traded stocks — a combination of two other behavioural techniques (i.e., salience and social norms).

In the experiment, participants were given $10,000 in play money to buy and sell stocks in a simulated, digital trading environment.

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.

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.

This research report also categorizes and defines gamification and other behavioural techniques that are currently used by online brokerages, or that may be used in the future. It looks at both the positive and negative impact these techniques can have on retail investor behaviour.

The study’s findings will assist the OSC, as well as other regulators and stakeholders, to better understand the use of gamification and other behavioural techniques.

Improving the investor experience and expanding investor protection is a key OSC priority. The Digital Engagement Practices in Retail Investing: Gamification and Other Behavioural Techniques study findings reinforce the importance of using behavioural science as a policy tool by regulators. The findings allow stakeholders to better understand the influence their digital engagement practices may have on their clients. Increased awareness of the impact of these practices on investors may ensure negative investor behaviours are not intentionally or unintentionally encouraged. It is the OSC’s expectation that platforms will use this knowledge to focus on techniques that support good investor outcomes.

The OSC Investor Office partnered with the Behavioural Insights Team on the study.

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The mandate of the OSC is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair, efficient and competitive capital markets and confidence in the capital markets, to foster capital formation, and to contribute to the stability of the financial system and the reduction of systemic risk. Investors are urged to check the registration of any persons or company offering an investment opportunity and to review the OSC investor materials available at http://www.osc.ca.

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