Influence of Dopamine-Driven Trading Apps on Impulsive Decisions

Jul 28, 2025 | Behavioral Finance, Economic & Financial Tools, Macro Environment Analysis, Personal Finance & Financial Literacy

WHAT IS BEHAVIOURAL FINANCE?

It is a branch of Behavioural Economics, which specifically discusses the biases of the practitioners or investors who make the investment or financial decisions; they give a disproportionately higher weight to one choice or against it for no rational reason. It lies in the centre of psychology and finance and gives us a better perspective of finance at play in reality than traditional finance.

Traditional Finance works under the assumption that all the investors are rational and logical, however in reality, the investors carry biases and can be irrational at a lot of times or have bounded rationality as they are psychological beings. Traditional Finance is guided by the efficient Market Hypothesis, developed by Eugene Fama is when the prices of financial assets are decided when all the market information is available. According to the theory, the only way to achieve higher returns is to take bigger risks. 

Often, traditional finance fails to explain market movements and thus market anomalies cannot be understood through traditional finance but through behavioural finance. It discusses the mistakes that happen while making rational financial decisions and how we can correct them as well as the opportunity that arises for agencies, brands and big players in the market who can take advantage of these same mistakes. 

Among the two response systems, namely reflective and reflexive, reflective responses take more effort, which is why investors tend to create shortcuts and heuristics to make their decisions easier. In financial markets, because of these same heuristics or shortcuts or habits which are not very accurate, biases creep in and they tend to overweight certain situations or underweight certain data leads to an impact on their returns. 

KINDS OF BIASES

The above-mentioned biases or prejudices that influence decision-making are of various kinds. To understand better how these get in the way of making sound financial decisions, we will discuss the types of biases:

  1. AVAILABILITY HEURISTIC- The immediate examples that come to mind and can be easily and quickly understood are the ones the practitioners form a bias towards
  2. HERD MENTALITY- When the investors follow and copy what other investors are doing and do not form their own opinion or do their research is referred to as herd mentality
  3. CONFIRMATION BIAS- When the investor comes across a piece of information, they tend to find the parts that affirm to their prior beliefs and thus form a bias
  4. RECENCY BIAS- It is an example of memory bias, where the examples that have been experienced recently form a bias as compared to the ones that occurred in the relative past
  5. LOSS AVERSION- It describes that the emotional impact of a loss is experienced at a greater level as compared to a gain of the same amount. Hence the investors are under this bias as they are guided by fear.
  6. OVERCONFIDENCE- A lot of times, the investors tend to overestimate their skill and trade irrationally and frequently and end up ignoring relevant information and hence form a bias.

TYPES OF TRADING APPS

  1.   Discount brokers apps- These apps provide low-cost trading and investing services without any personalized investing advice. These apps are mobile friendly providing traders a direct access to the markets without any intervention. These are suitable for individuals who are cost-conscious and prefer to maintain their own portfolios without extensive support.

          Examples- Zerodha,  Upstox

  1.   Trading focused apps- These apps are specifically suited for active traders who are involved in intraday trading or derivatives trading. They offer easy access to market information like price levels, order size and charting tools to help the trader in making accurate and quick decisions.

          Examples- Kite, AngelOne

  1. Traditional bank-based brokers- These apps provide a comprehensive range of services from investment advice, portfolio management to stock trading, mutual funds bonds etc. They directly link the trading account with the existing savings account and demat account providing a one stop shop. As compared to the discounted brokers apps, traditional bank-based brokers charge fees based on the percentage of transaction value. It is suitable for those individuals looking for premium services and are willing to pay to get a financial plan suitably tailored for them.

          Example- HDFC securities, ICICI Direct, Motilal Oswal Financial Services

  1. Mutual fund platforms- These apps focus on long-term investing through mutual funds. They offer direct mutual fund plans which eliminates intermediary commission.

          Example- Zerodha Coin, Groww, ET Money

GAMIFIED TRADING APPS: INVESTING SHOULD BE FUN!

Dopamine, addiction and hence hours long of time of investors is being looked out and searched for by gamified trading apps to extract a lot of money out of a surprisingly small group of people. Before the entry of these apps, the majority of work of attracting investors was done by stockbrokers who ended up having a negative image of pushing deals over to traders for their brokerage. But now, as these companies have cut down all the people in between, companies like Robinhood have come forward to offer trades for free with other ways to extract money from clients. They get people to trade as much as possible and that’s by converting the whole process of investing into a giant game where investors play against confetti animations, for high scores. 

NEO BROKER TRADING APPS

Neo brokers are digital financial services that make trading and investing more accessible to a broader consumer base. They offer zero or low-cost commission, seamless interface and an overall user-friendly experience. 

Features of Neo brokers/dopamine driven apps that influences trader behaviour- 

  1.   Instant Gratification- Trading apps are designed in a way that they provide instant feedback, rewards and updates which keeps the traders fervently dedicated. Features like Real time updates about profit and loss keeps the trader emotionally invested and the option of buying and selling stocks with one click leads to impulsive and irrational decisions among a few retail investors.
  2. Gamification Elements- It means using game-like features to keep the traders hooked and make trading more engaging. They include features like leader boards, charts, confetti on execution, streaks and badges etc. Coin DCX an Indian crypto currency trading app uses streaks to show users the current level they have unlocked just like candy crush!

Despite the negative effects, it still offers some benefits like gamified learning and financial literacy by making trading more interesting and appealing.

  1.   Constant market updates and push notifications- The notifications of how the markets are moving and highlighting the ‘hot stocks’ creates a feeling of FOMO, and pushes investors to take action, also commonly known as herd mentality. When a notification pops up on the mobile screen, “stocks of X company are up by 9%. Buy them now!”, it creates a sense of urgency and leads to excessive risky trades.
  2.   Leverage offers- Some trading apps offer Buy Now, Pay Later (BNPL) services which acts as an incentive for traders to continue trading.  With low entry costs, investors generally carry an attitude like they have ‘nothing to lose’ so they jump in and trade risky stocks without any prior research or financial discipline. When the brokerage costs or commissions are high, the investors tend to be cautious with their decisions which has completely changed now.

In the US alone more than 10 million new investors entered the markets in the first half of 2021, according to JMP Securities. A similar rise has been observed in India. According to data from the Securities and Exchange Board of India (SEBI), new Demat accounts surged to a record high of 10.7 million between April 2020 and January 2021. This is more than twice the number of new accounts opened in FY20, which was 4.7 million. This section discusses the key features of trading apps which have attracted many investors in recent years.

CONVENIENCE-DEMOCRATIZING THE INVESTMENT LANDSCAPE

One of the key elements pulling more users towards trading apps is the convenience in their usage. They allow traders to trade stocks, mutual funds, options and other financial instruments with ease, anywhere and anytime. Most of such apps have a simple, intuitive and easy to use interface and it does not take them much time to get a hang of the investing process. Not only is buying and selling instruments hassle-free, payments and receipts are also prompt. Traditionally, investing in stocks was considered the realm of the affluent, educated and professionals with in-depth knowledge of the market and its nitty-gritties. The process was cumbersome and time-taking, often requiring one to go through brokers or financial advisors who would execute trades on behalf of investors. The advent of online trading apps, however, has brought a radical shift and has gradually been promoting financial inclusion for the retail investors.

FINANCIAL ACCESSIBILITY: AFFORDABLE AND COST EFFECTIVE INVESTING

Historically, trading stocks and investments were associated with high costs, with brokers charging substantial fees for their services. Online trading apps have revolutionized this aspect by providing a cost-effective platform for trading. Most of these apps offer minimal to zero-commissioned trading experience significantly lowering financial barriers for novice investors and ones with limited capital. However, this may raise questions about the revenue generation of these trading apps. While apps generate revenue through advertisements, premium subscriptions and other ways, one way is through Payment for Order Flow (PFOF). PFOF is a form of compensation that a trading app receives for directing orders and executing trades to a particular market maker or exchange. This allows them to offer commission-free services while still generating revenue.

TECHNOLOGY HARNESSED TO PROVIDE REAL-TIME UPDATES & A BETTER EXPERIENCE

The novelty and innovation behind trading apps stems from the integration of technology and AI with the finance world. These apps leverage the power of tech and ML algorithms to generate analytics and insights allowing them to track their record and make better decisions. Another valuable feature of trading apps is the provision of real-time market updates. In the dynamic world of stock trading, staying updated with real-time information is essential. Trading apps make this easier by allowing users to monitor their investments and market trends instantly, helping them make informed decisions timely. These platforms also put investors in the driver’s seat—rather than promoting dependence on a broker. With real-time updates and analytics, they can buy and sell instruments of their own accord considering any associated future risks. Trading services coupled with an array of other investment tools ultimately enhance user experience. They often offer portfolio trackers, technical analysis instruments, market news updates, historical data, and future projections. These tools empower users with valuable insights, aiding in sound decision-making, and refining investment strategies. Online stock trading apps prioritize the security of their user’s data and investments. They employ end-to-end encryption, biometric authentication, and other advanced security measures to ensure that the user’s data and funds are safeguarded against potential threats.

The above-mentioned engaging and seamless features of dopamine-driven trading apps keep drawing in more investors. With real-time updates, instant trade execution, and user-friendly interfaces, these platforms make investing more accessible and appealing. As a result, their popularity continues to surge, reshaping the trading landscape. However, it is essential to look at the other side of these features which is not so alluring. For instance, in the US, the Securities and Exchange Commission is investigating whether apps are irresponsibly encouraging overtrading using excessive email alerts and by making investment feel like a game.

Let’s discuss what nuances of trading apps lead to impulsive and irrational decisions.

DARK SIDE OF GAMIFICATION:EXAMINING ITS NEGATIVE IMPACT ON FINANCIAL MARKETS

Although, gamification of the trading process incentivizes investor to engage more, but gamifying to a degree it actually feels like playing a game with hypothetical corpus may lead to irrationality. In many trading apps, every purchase is responded to with rewards like a score or confetti rain. This stimulates dopamine release in the user making him want to invest again without care. Behavioural psychology dictates that whenever you reward a certain behaviour a person is more likely to repeat it. A reward makes our brain produce dopamine (happy chemicals) and because dopamine makes one feel happy, the person remembers how the dopamine release was triggered (here: through trading) and tries to experience the same situation repeatedly leading to irrational and impulsive decisions.

FROM CASINOS TO STOCK MARKETS: THE PSYCHOLOGICAL PARALLELS BETWEEN GAMBLING & TRADING APPS

Research by CFA Institute found that 61% of Gen Z investors aged 18–25 gamble online or in-person, compared with only 29% of their age group who do not invest. These statistics indicate a strong relation between gambling and overtrading (or trading irrationally).

Gambling addiction is dopamine related and this addiction stems from desires that seek pleasures, where sensations of pleasure involve dopamine flows crossing the benchmark level that is considered normal. Gambling addicts find it more difficult to generate dopamine hikes. Therefore, they need more intensive stimuli than others to trigger the same kinds of highs. Furthermore, the brain of an addict is not equipped enough to produce self-control. Taking these two features together means that gambling addicts happen to take greater risks to achieve the same psychological highs than others, and are more prone to do so, even when they know that the behaviour is highly imprudent.

Trading apps stimulate a similar experience for the user which if not kept under check, can lead to a gambling-like experience. Using digital prompts, apps like neo brokers generate stimuli which activate the dopamine-based reward centers in investors’ brains.

   

Investor Warren Buffett said that the apps were bringing casino-like behaviour to the stock market. Although the similarities between investing and gambling have been in talks for a long time, new forms of online apps and platforms have created a new need for more concern in this area. These apps and platforms offer fast and easy entry into diverse investing opportunities and risks, and they are also potentially attractive to people manifesting excessive returns. Such apps and platforms also offer high-risk investing options such as leverage (using borrowed capital) which multiplies both wins and losses and carries a risk of losing all of one’s own capital in forced liquidation which is very similar to losses happening due to gambling .  Studies suggest that personal risk factors, such as risk-taking, sensation-seeking, and overconfidence, are similar for both gambling and stock trading and this has been expedited by dopamine-driven trading apps.

WAYS TO OVERCOME BIASES

As investors, after understanding behavioural finance in theory, we also should comprehend it in reality and be able to apply this information practically. Hence, we shall look forward to a few solutions to overcome the psychological biases in investing. 

TAKE YOUR TIME
We should take our full time to do our research and not get influenced by the masses or our already-known information. We should first focus on collecting the right information and then make an informed decision based on that. We should seek financial advice for proper understanding.

DECIDE YOUR GOAL OR PURPOSE BEHIND INVESTING
To differentiate yourself from the masses, and overcome the bias of herd mentality, we should first get our personal reason behind investing and invest accordingly.

ASSET ALLOCATION/ DIVERSIFICATION
Selecting multiple stocks or assets and diversifying your portfolio is a good way to overcome biases since we do not risk all our money in one preferred selection

INVESTING DISCIPLINE
You should develop your discipline and make your own set of rules for investing for yourself and commit to them

CONCLUSION

The rise of dopamine-driven trading apps has completely transformed the investment landscape, making investment activities more approachable and engaging for a rising cohort of investors. By simplifying the mechanisms of a complex investment system and enabling user-friendly interfaces, such platforms have democratized investing like never before. However, leveraging psychological triggers as a means of pulling more users may not go a long way. Too much gamification or excessive indulgence can trigger irrational decisions that are stimulated by the dopamine-driven rewards embedded into these apps. Although these advancements have revolutionized traditional market participation, it is crucial to acknowledge the psychological and social risks connected with it and develop mechanisms that keep these downsides under check so that such apps contribute to the economy rather than becoming a gamble.

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