It’s all funds, games until …

Fun and games aren’t just for children this holiday season. Turns out, investing is increasingly gamified.

However, it’s more of a year-round thing, as online investment platforms use “gamification” techniques, which can make the business of dollars and cents a little more fun.

In essence, gamification involves leveraging powerful behavioural psychology tools that nudge, through video game-like design, consumers toward engaging in certain behaviours — for better and for worse.

Canada’s largest investment regulator — the Ontario Securities Commission — has conducted a few studies examining gamification to understand its potential for benefiting and harming investors.

The OSC’s latest research aimed to see how widespread the use was in Canada among online financial platforms — i.e. registered online trading brokerages, robo-advisers and cryptocurrency-trading websites.

“We found that firms are deploying new tactics to engage people to take certain actions,” says Matthew Onyeaju, senior vice-president of registration, inspections and examinations at the OSC.

“Some of those are positive, like friendly prompts for cybersecurity, for promoting opportunities for long-term savings and planning for the future.”

Yet other measures fall into the more troubling category, ominously referred to as “dark patterns” that may make investing a little too fun to the detriment of investors.

“In broad strokes, we are now considering applying securities regulation against some of the more troubling emerging tactics aimed at engaging investors,” Onyeaju says.

In its most recent research, where the OSC found problematic gamification techniques, it issued warnings to stop.

Those platforms flagged for crossing lines were using gamification strategies such as providing rewards points for individuals trading securities more frequently.

Although seemingly harmless on the surface, therein lies the power of gamification, says Mira Palasia, head of behavioural insight and head of investor research at the OSC. “For instance, when you provide points with negligible economic value for every trade that investors make, they tend to make more trades.”

Research also shows more frequent trading is more likely to lead to investor losses, she adds.

It’s all fun and games … until it’s not for investors.

But increased buying and selling is often lucrative for investment platforms, Onyeaju says. “So you could see how that would create a natural conflict of interest.”

Troubling gamification tactics promote more frequent activity, driven by short-term motivations, which is antithetical to true investing, says Ryan Munson, research manager at CFA (Chartered Financial Analyst) Institute in Charlottesville, Va.

“With investing, you are working toward a long-term goal, like retirement, and so decisions are based on achieving that goal.”

Gamification techniques increasingly used on investment platforms mimic some of the strategies commonplace on social media platforms.

“The goal is engagement — and gamification is a good way of engaging people,” Munson says.

And the techniques can be insidiously predatory, leveraging “FOMO, or fear of missing out,” he adds. “It’s along the lines of ‘if you don’t make this trade, think of what you might be missing.’”

For the most part, the most egregious gamification manipulation occurs outside of Canada.

“That’s where you find platforms doing things like ‘copy trading’ where you can follow another investor and set up your account to automatically make the same trades they make,” says Sasha Tregebov, director of Behavioural Insights Team, Canada — a Toronto-based organization that works with the OSC on topics like engagement.

Of course, gamification is a powerful motivator for good behaviour, too, and its techniques were “pioneered” by those seeking to improve education and health care, he adds.

“A great example of gamification would be the Fitbit,” he notes with users of the activity-monitoring wristwatch often seeking to achieve 10,000 daily steps. “It taps into these deeper ways in which human beings are motivated.”

Tregebov says these techniques can help financial institutions nudge consumers toward behaviour beneficial to their personal finances.

Concern arises when platforms are “trying to encourage investing in higher-risk products, buying higher fee products or trading more frequently” — all of which can be beneficial for the industry, but less so for investors.

The most recent effort by the OSC sought to measure just how widely troublesome gamification techniques are among registered investing platforms.

The OSC did not indicate which online financial websites were examined and flagged for potentially suspect techniques. Yet those found to be crossing ethical lines were notified and given time to make appropriate changes.

“Where we did issue deficiency reports, corrective actions were taken to the satisfaction of staff,” Onyeaju says.

That the OSC and other regulators are trying to keep abreast of gamification tactics used by online platforms should be welcomed by the investor public, Tregebov says.

“These are really powerful tools when it comes to influencing behaviour,” he says.

“So if I were a regulator, I would also be keeping a close eye on potential emerging threats that could prevent people from making good decisions about their money.”

Joel Schlesinger is a Winnipeg-based freelance journalist

joelschles@gmail.com