We are constantly being nudged, we’re just not aware of it.
Nobel laureate Richard Thaler popularized the idea of a ‘nudge.’ A nudge “alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives,” he writes in his 2008 book of the same name. More broadly, we know that the way choices are presented (known as choice architecture) can encourage or discourage specific behaviors. There are simple examples, like putting veggies at eye level and cookies at the back at the cafeteria to encourage healthy eating, but the biggest nudges are far less obvious.
Once you understand nudging and choice architecture, you notice it everywhere. As a behavioral economist, I apply this framework regularly, yet trading platforms’ choice architecture is particularly important because people risk their fortunes there and most are unprepared to plan, manage, or respond to what happens to their portfolios in the best and the worst of times. Also, there are many invisible nudges built into nearly every platform and most don’t help investors make better decisions.
Trading platforms benefit from people trading as much as possible because it generates revenue. Makes sense. However, overwhelming academic and industry evidence shows that the more people trade, the more money they lose — so much so that the grand majority of…
