Online Addiction—The Robinhood Chapter
One of the most challenging debates of the online world is whether some online products – games, entertainment, or stock trading – are too addictive. Most online services are indeed deliberately addictive, designed to keep users engaged and logged in. This permits the platforms, games, or services to offer advertisements beside each piece of additional content viewed, and to sell premium or additional services to those who are “hooked” on the product. Online games deliberately manipulate the player’s emotions to encourage them to feel a satisfying rush from progressing from one “level” to another, and from vanquishing demons along the way. Even Google’s Youtube serves up and starts another video automatically when the user finishes viewing the first.
But addiction in general has its costs. Sugared drinks are blamed for an epidemic of obesity in America. Gambling is blamed for family poverty and personal desperation. Facebook has been blamed for driving users to extreme attitudes and behavior by serving up more highly charged and biased content. The internet itself is blamed for a variety of obsessive habits which take users away from their families and responsibilities.
Almost all products have elements of deliberate addiction built in. Food products manipulate sugar and salt content to make them more addictive. Amazon suggests other products “frequently bought together” with whatever the consumer is viewing. Facebook’s algorithms are considered by many to be models of addiction.
Two internet services are under new fire for their very existence – online gambling and online financial trading. Online gambling can be done secretly and anonymously. It is feared more than gambling in casinos and other venues where the individual must appear to participate. Online gambling can speed up the gambling process – leading to a greater “rush” and allowing the individual to rack up losses more quickly. Only 5 U.S. states are facilitating online gambling. The rest have various barriers in place to limit or prevent it. Nonetheless, more gambling is taking place online and more pseudo-gambling activities are being created – for example, fantasy sports websites with cash payoffs. The public policy battle over access to online gambling will continue, as will the debate over whether gaming and betting companies are ethical at all.
The other service gaining great attention in mid 2020 is online trading in stocks and other financial instruments. All major investment companies permit customers to place orders online, but the processing takes place at a slow enough pace not to raise concerns. The kind of online financial trading which does raise ethical concerns and fears of addiction are apps which make the buying and selling of stocks so simple and immediate that they provide instant “highs” and have more addictive qualities. Online trading is increasingly providing access to more speculative stocks and options, representing greater financial risk to individuals who are often very unsophisticated.
Robinhood, an online trading service and app, is designed to enable rapid and sizable trades in more risky investments as well as traditional stocks. Robinhood was founded in 2013 with a pitch that included no trading fees or account minimums. Critics argue that the site has used a “Silicon Valley playbook of behavioral nudges and push notifications” to draw less experienced investors into riskier and riskier trading.
Robinhood’s success is found in a few statistics. It customers traded nine times as many shares as E-Trade customers in the first three months of 2020, according to the New York Times. They trades 40 times as many shares as Charles Schwab customers and 88 times as many risky options contracts, relative to the account size. However, studies have also shown that the more one trades, and the more one trades in risky options, the worse their returns.
Those who do not challenge the ethics of Robinhood’s very existence, argue it should have more effective guard rails to prevent inexperienced users from getting in over their head. That criticism was heightened by the suicide of a 20 year old Robinhood customer in June when he logged onto the app and saw that his balance was a negative $730,000. The customer, a college student, wrote in his suicide note that he had no intention to take on so much risk. Robinhood’s average customer is 31 and half have never invested before. In fact, his balance was not so low; Robinhood’s app did not take into account incomplete trades.
Robinhood’s founding story sounds noble. Two Stanford students dropped out of college in 2005, inspired by the Occupy Wall Street movement, to make finance more accessible to the less well-off. Confronted by the criticism that so many of their naïve users lose money, the founders argue that the only way to build wealth is to trade and that these customers risk greater losses by being out of the market. Hmmmmm.
Robinhood’s incentive to make trading free, easy, and addictive, is that the company gets paid by Wall Street Firms that handle the trades and pays Robinhood for the privilege. For Robinhood, greater volume is the only important performance metric. One wishes they did more than add a few educational pages to their app and website to protect their own users from their misbehavior.
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