The Stock Market as a Casino: Associations Between Costly Excessive Stock Market Trading and Problem Gambling

Mosenhauer, Moritz, Philip W. S. Newall, and Lukasz Walasek. 2021. “The Stock Market as a Casino: Associations Between Costly Excessive Stock Market Trading and Problem Gambling.” PsyArXiv. January 8. doi:10.31234/osf.io/zqe9s

Rolf Degen's take: https://twitter.com/DegenRolf/status/1347401853458329600

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.