The day after The Wall Street Journal published “Why This Frothy Market Scares Me,” it published “More Men Are Addicted to Stock Market ‘Crack Cocaine.” We recommend reading both in full, if possible (journals have gotten better at blocking archives. If readers can get a paywall-free version, we’ll update links and remove brackets. ).
Here we will focus on the latter, which is important and well-researched. But it’s surprising how the investment gambling addiction profile ignores some problems and downplays others. How much of the stock market’s soaring levels are the result of the actions of overzealous traders, and how much of this compulsion is at least as much the cause? Just as Purdue Pharmaceuticals plans to create OxyContin abusers, interface designers are working to create trading addicts. The problem, of course, is that drugs that produce physical and psychological dependence are not considered the same in our society as those that are psychologically dependent, even though cocaine is specifically only psychologically addictive. That’s it.
At a fast-paced market level, time will tell whether the old concepts still work today. One is that bull markets don’t end until the last bear market ends. I remember when I was a dot com maniac. At the time, it was considered perfectly reasonable to value companies based on “eyeballs” that would never make a penny of profit. All the people I thought were sane came in trying to get a piece of this supposedly new paradigm. That included traditional companies trying to position themselves as Internet plays. Stock market investors as a whole don’t seem all that confused yet. But the journal cites indicators that suggest otherwise. From your account:
Bulls are everywhere. Bears are hard to find. This is manifested in emotions, research, and surrender of permabears.
Sentiment is euphoric, according to Citigroup’s Levkovich Index. The index combines many metrics and suggests that the only two times investors were more positive were the post-pandemic SPAC/cannabis/green bubble and the 1999-2000 dot-com bubble. Masu.
Other signs of optimism. Investors Intelligence’s weekly survey shows that investment newsletter writers are rarely bullish or bearish. Households have never been more confident that stock prices will rise over the next year, according to the Conference Board’s monthly survey.
Fund managers have shifted more toward being overweight in U.S. stocks since the election than at any time since 2013, and are about as all-in on the U.S. as they have ever been, according to Bank of America research. Money is also flowing into the fund at an unusually high rate, approaching new highs…
Not this time. Rosenberg believes the prospect of an AI-driven productivity boom is causing investors to move away from the standard metric of price to one-year earnings and look further ahead. Even companies like Goldman Sachs, which believe the market will eventually return to normal, don’t expect trouble right away.
Again, a typical market bubble is characterized by an explosion of seemingly insane prices. The last heady period of the dot-com boom lasted three months. Therefore, the party may still have a little further to go.
Now, moving on to market addiction, this makes it very clear that “addiction” is not an exaggeration. A growing number of men (all men, it seems) with a habit of financial speculation are showing up in Gamblers Anonymous and therapists’ offices. From the diary:
At Gamblers Anonymous in Manhattan’s Murray Hill neighborhood, one man called options the “crack cocaine” of the stock market. Another said he faced hundreds of thousands of dollars in trading losses after borrowing from loan sharks to double his stock. And one young man brought his mother and girlfriend to celebrate one year since his last bet.
They were part of a group of about 60 people, almost all men, who sat in rows of metal folding chairs in the crowded church basement that night. Rather than sports apps or Las Vegas casinos, some people used brokerage apps like Robinhood to share their struggles with addiction.
Many men, and many men across the country, discovered trading and gambling during the pandemic boom that began in 2020. Others, lured by big wins in meme stocks and other viral stock sensations, turned to even hotter bets. This offers you the chance to put in a little cash for potentially huge profits, or even potentially big losses.
Recall that Robinhood, in particular, was accused of trying to create not just excitement, but the dopamine rush that users seek over and over again. Forbes magazine, in Robinhood’s dopamine-driven trading raises suitability concerns for the SEC, notes how the SEC also took note:
Compatibility is both a legal and an ethical issue. There is growing evidence that trading on Robinhood is completely inappropriate for many investors. At the top of my list of unsuitable investors are investors who suffer from gambling addiction. In 2013, the American Psychiatric Association reclassified problem gambling behavior from an impulse control disorder, such as kleptomania, to a disorder associated with substance abuse or addiction, such as alcohol or drugs. Ironically, Robinhood was founded in 2013, the same year that pathological gambling was reclassified.
Gambling addiction is linked to dopamine and is part of what author Anna Lembke calls the “dopamine nation,” the title of her new bestseller. Lembke explains how addiction develops because people seek pleasure, and that the feeling of pleasure involves an increase in the flow of dopamine above baseline.
Research shows that people who suffer from gambling addiction are different from other people in at least two ways. First, people with gambling problems find it more difficult to produce high levels of dopamine. Therefore, some people require a more powerful stimulus than others to induce the same kind of euphoria. Second, the executive part of gamblers’ brains is weaker than other people’s, which makes self-control more difficult. Taken together, these two characteristics mean that gamblers need to take greater risks to reach the same psychological highs as others, even when they know they may be acting recklessly. means they are more likely to do so.
The Robinhood platform does a great job of using digital prompts to generate stimuli that activate the dopamine-based reward centers in users’ brains. This may be like giving a baby candy, or to a gambling addict enough rope to hang himself. Research shows that parts of the brain associated with vision play a key role in regulating the degree of risk people take by influencing the flow of dopamine in brain areas associated with expectations.
Please be aware that social media sites often act under duress by deploying emotionally charged items that often translate into extreme or provocative content in order to generate engagement. is reportedly trying to create a new user. However, social media does not have a very strong visual component, and the platform is unable to produce particularly captivating items, instead amplifying what it deems the most appealing of the user-provided materials. That’s all. Addiction Center has identified several Robinhood design elements that attract vulnerable customers.
Does this app promote gambling?
One of the characteristics of gambling is volatility. Some days you win the jackpot and other days you lose $7,000. That is essentially what makes gambling so appealing. Unfortunately, it’s a big problem in the United States. About 1% of adults struggle with a gambling disorder, which is why researchers and competitors are sounding the alarm on Robinhood. According to the whistleblower, the app uses exploitative practices to induce users to gamble.
robin hood design
Experts claim that, like gambling apps, Robinhood uses cues that promote addiction. This behavior is similar to gambling disorder. For example, when a new member joins the platform, an image of a digital scratch-off lottery ticket will appear on their screen. The photo shows a welcome stub, a gift for joining the Robinhood community. The app’s stubs promise free shares of stock worth between $2.50 and $200. If a new trader wants to get his hands on the winnings, he has to play by “scraping” the images, like in the lottery.
At first, this interaction seems harmless, even fun. But Keith White, executive director of the National Council on Problem Gambling, cautioned that Robinhood’s style features features similar to those of typical gambling apps. He argues that this fosters immediacy and frequent engagement. Through its design, Robinhood induces a dopamine rush (the feel-good neurotransmitter).
By promising a free but unknown gift, the company triggers an immediate dopamine response in new users. The trigger is what keeps them coming back.
Robinhood’s many purported dopamine-inducing functions include:
Green confetti celebrating the deal. Stock-related articles are updated regularly. Colorful and eye-catching interface. Emoji phone notification. Get instant gratification with one-click trading. Free stocks in the form of lottery tickets. A waiting list where users can advance their rankings with up to 1,000 taps per day.
Research shows that uncertainty and reward streams attract users. Just like drugs and alcohol, uncertainty stimulates the brain’s reward system. Over time, this repeated exposure can lead to addiction. Other studies have shown that instability can further increase drug cravings and desires. The market wave and Robinhood’s fun interface have made users too loyal.
We return to the journal to get a rough indication of the growth and current scope of this problem.
Doctors and counselors say they are increasingly seeing compulsive gambling and uncontrollable gambling urges in the financial markets. They expect the problem to get worse. The stock market is up 23% this year, and Bitcoin recently topped $100,000 for the first time, sending many people into speculative trading. Wall Street continues to introduce newer and riskier market strategies through stock options and complex exchange-traded products that use borrowed funds to increase risk for investors.
Pennsylvania’s gambling hotline has received more calls related to stock and cryptocurrency gambling since 2021 than in the previous six years combined. Jessica Steinmetz, clinical director of the Safe Foundation, a New York-based treatment center, estimates that about 10% of her patients seek help for addictions related to trading. Before 2020, such patients did not exist….
Addiction counselors say gambling in financial markets often goes undetected and can be difficult to track because individuals confuse their behavior with investing. Unlike sports betting apps like FanDuel and DraftKings, most brokerage apps don’t post gambling warnings or offer hotlines for help.
The proliferation of financial products and the proliferation of fancy brokerage apps that make it easy to trade them has led some gamblers to believe they aren’t actually making bets.
The article goes on to point out that the high level of stock options makes them particularly attractive to trading junkies, and that the riskiest version of options trading is exploding.
Options trading activity is on track to set new records this year. Trades in the riskiest same-day contracts soared, accounting for more than half of all trades in the S&P 500 Index options market this year, according to Spot Gamma statistics. These trades are more exciting than traditional stocks and can skyrocket or drop to zero within minutes.
Of course, apart from being dangerous for the addict and potentially disastrous, this act represents a further perversion of the ostensible role of securities investing. Keynes said:
Speculators may not be as harmful as a bubble in a steady stream of companies. However, when companies ride the vortex of speculation and create a bubble, the situation becomes dire. If a country’s capital development becomes a byproduct of casino activity, the job is likely to go awry.
