The stock market as a casino: Associations between stock market trading frequency and problem gambling

Abstract

The stock market should be a unique kind of casino, where the average person wins money over time. However, previous research shows that excessive stock market trading can contribute to financial losses --- just like in any other casino. While gambling research has documented the adverse consequences of problem gambling, there has been comparatively less behavioral finance research on the correlates of excessive stock market trading. This study aimed to document whether excessive stock trading was positively associated with problem gambling, and whether this hypothesized association was robust to controlling for demographics, and objective measures of overconfidence and financial literacy in a convenience sample of 798 US investors. We found that self-reported relative stock portfolio turnover was positively associated with problem gambling, that this association was robust to controls, and occurred equally over investors of all self-reported portfolio sizes. This study showed that problem gamblers may also make suboptimal risky choices more generally, and that a behavioral dependence explanation for suboptimal investment decisions should be subject to further investigation in the behavioral finance literature.

Do Gamblers Invest in Lottery Stocks?

“…Similarly, Dorn and Sengmueller (2009) finds that investors who self-reportedly enjoy both gambling and investing exhibit significantly higher portfolio turnover rates than those who do not, and that the enjoyment sourced from both activities helps explain excessive trading behavior. Mosenhauer et al (2021) and Liu et al (2022) provide additional evidence to the link of gambling motives and excessive trading. The latter find that gambling preferences and the perceived information advantage of investors dominate all other surveyed motives in explaining excessive trading.…”

Association between gambling and financial trading: A systemic review.

“…Williams et al (2022) reported the result of a logistic regression predicting past year speculation and found that higher gambling frequency was the strongest predictor (OR = 1.65), and higher PGSI was also a significant predictor (OR = 1.07). In an article using a Prolific sample of individuals who had experience with gambling and current investments (Mosenhauer et al, 2021), risk for problem gambling predicted high trading frequency (i.e. turn over) over and above the other predictors (i.e.…”

Persistence is futile: Chasing of past performance in repeated investment choices.

“…Second, they often provide users with prompts and notifications to entice frequent portfolio checking and further trading, reducing inertia through inaction (Zweig, 2020). Furthermore, there appears to be a trend towards the "gamblification" of trading, with the aim of transforming it into an addictive activity similar to gambling (Mosenhauer et al, 2021). The influence of social media, bringing individuals who acquire large gains from random lucky investments into the spotlight, while those with similar strategies but who incur losses not being as well publicized, might lead to investors mimicking inefficient behavior.…”