Trading Gamification, Asset Prices, and Liquidity

Abstract

We run a laboratory experiment to study the impact of trading gamification on price discovery and market liquidity. Participants on gamified markets receive achievement badges for activity and notifications of short-term price trends. Gamified markets trade 31% more than the control group, with a sharp increase in limit-order submissions and intraday churn. Gamification incentivizes market-making strategies: quoted spreads drop by 26% and depth rises by 24%. The induced market making is naive, as prices respond less to information in order flow. Gamification therefore worsens price discovery, with a 28% increase in mispricing and a two-fold increase in bubble episode frequency.