Gamification has earned a bad reputation in investing.

And for good reason.

Previous research from the Ontario Securities Commission found that investors who were rewarded with meaningless points for making trades ended up trading almost 40 per cent more often.

That is not exactly a recipe for better outcomes. Decades of research have shown that excessive trading tends to hurt investor returns.

But in a recent Globe and Mail column, I looked at newer research suggesting the real problem may not be gamification itself.

It may be what we choose to gamify.

The OSC recently tested this idea with more than 4,000 Canadians using a simulated investing platform.

Instead of rewarding people for trading, the platform rewarded diversification.

Participants were shown one of four different features: a diversification score, a diversification goal, a leaderboard or digital badges tied to diversification.

All four improved portfolio diversification.

That is an important distinction.

A trading platform can use the same behavioural tools to encourage completely different outcomes. Reward frequent trading and investors may trade more. Reward better portfolio construction and investors may build better portfolios.

The incentives matter.

Many investing platforms make money when customers trade, speculate or remain highly engaged. It should not be surprising when their interface encourages exactly those behaviours.

But there is no reason the same design techniques could not be used to encourage diversification, long-term thinking, regular contributions or other behaviours more closely aligned with investor success.

This also creates a more interesting challenge for regulators.

A blanket crackdown on gamification could eliminate harmful features, but it could also eliminate techniques that might genuinely help investors.

Gamification is probably not going away.

The better question is whether we can design the game so that winning means becoming a better investor.

Can gamification of investing be a good thing? An OSC report suggests it can
One thing is for sure. Gamification is inevitable. The question is how we can address it for the betterment of investor outcomes
The Globe and MailPreet Banerjee