Blog Archives

Stock tales: Is financial trading a form of gambling?

One of the questions I am most asked by my students and the media alike is whether trading on the stock market is a genuine form of gambling. That might sound a simple question, but it all comes down to what definition of gambling you are using. My own view on gambling is that it boils down to the staking of money (or something of financial value) on a future event. When I first started my research into gambling back in the mid-1980s, there were four fundamental types of gambling:

  • Gaming – Staking of money during a game (e.g. slot machines, roulette, blackjack, etc.)
  • Betting – Staking money on a future event, typically sports events (e.g. horse race betting, greyhound betting, football betting, etc.)
  • Lotteries – The distribution of money by lot (e.g. National Lottery)
  • Speculation – Staking money on stock markets (e.g., investment in shares, day trading, etc.)

In a previous blog I briefly examined whether stock market speculation was a legitimate form of gambling. However, back in the 1980s, psychologists were only interested in studying the first three of these activities (i.e., gaming, betting and lotteries). Although a few academics accepted ‘speculation’ as a true form of gambling, the majority of researchers in the gambling studies field did not (including me). The prevailing view at the time was that ‘speculation’ was viewed as involving a fair amount of skill and/or relied on ‘insider information’ and therefore was not a legitimate form of gambling compared to other forms of gambling. Although there were clearly accepted forms of gambling that had skilful elements (e.g., poker, blackjack), academic psychologists still rejected speculation as a form of gambling worth investigating.

However, this all changed after the introduction of spread betting. I argued in a number of articles at the end of the 1990s that spread betting had taken the mechanics of stock market trading and applied it to sporting events. For me, this was a game changer in terms of studying the psychology of gambling. No longer could we say that speculation shouldn’t be studied because spread betting was clearly a form of speculation and it was something that appealed to a new type of gambler because it involved sporting events that many people think they know a lot about.

There was also one other key factor in changing psychologist’s perceptions of speculation as gambling – the ‘Nick Leeson effect’. In 1995, Leeson single-handedly brought down the UK’s oldest investment bank (Barings). Leeson was a derivatives broker whose fraudulent gambling caused the spectacular collapse of one of the UK’s most established financial institutions. From the early 1990s, Leeson made countless speculative (and unauthorised) gambles on the stock market that at first made large profits for his employers. However, as with most gamblers, his ‘beginner’s luck’ soon ran out and he started to lose huge amounts of money. Leeson’s losses eventually reached £827 million. Leeson’s psychology and behaviour was identical to that of a problem gambler (except he was gambling with much larger amounts of money and with someone else’s money).

There was perhaps another reason why speculation was seen as psychologically different from gaming, betting and lotteries. Unlike these other forms of gambling, speculation is a type of gambling where the gambler does not know how much they are going to win or lose on the gamble. If I put £1000 on a horse to win the Grand National or on black to come up on a roulette wheel, I know that losing will cost me £1000. On most stock market trades or spread bets, no-one knows beforehand what the losses could be. However, there are financial trades that could perhaps be argued to be more like betting than speculation. For instance, binary options look as though they are going to grow in popularity over the next year or two as the gambling payoff is more traditional than usual financial trading.

In binary option betting, a cash-or-nothing binary option will pay a fixed amount of money if the option traded on expires in-the-money (i.e., it is a simple ‘win-or-lose’ bet as the potential return it offers is certain and known before the purchase is made). One of the attractions of binary options is that they can be bought on virtually any financial product and can be bought in both up and down directions of trade. The simplicity is likely to attract more people especially if they feel they know something about the product being traded upon. This is the same reason why spread betting took off in such a big way because people feel they know about the market (e.g., football) that they are betting on, even if there is a huge element of chance (which there invariably is). My guess is that most people who work in the financial markets don’t see binary options as an investment opportunity – they see it for what it really is – a pure gamble.

Dr Mark Griffiths, Professor of Gambling Studies, International Gaming Research Unit, Nottingham Trent University, Nottingham, UK

Further reading

Griffiths, M.D. (1991). ‘Gambling and Speculation: A Theory, History, and a Future of some Human Decisions’ by R. Brenner and G.A. Brenner. Journal of Economic Psychology, 12, 197-201.

Griffiths, M.D. (1998). Gambling into the Millenium: Issues of concern and potential concern. GamCare News, 3, 4.

Griffiths, M.D. (2000). Day trading: Another possible gambling addiction? GamCare News, 8, 13-14.

Griffiths, M.D. (2006). An overview of pathological gambling. In T. Plante (Ed.), Mental Disorders of the New Millennium. Vol. I: Behavioral Issues. pp. 73-98. New York: Greenwood.

Griffiths, M.D. (2007). Gambling Addiction and its Treatment Within the NHS. London: British Medical Association (ISBN 1-905545-11-8).

Griffiths, M.D. & Auer, M. (2013). The irrelevancy of game-type in the acquisition, development and maintenance of problem gambling. Frontiers in Psychology, 3, 621. doi: 10.3389/fpsyg.2012.00621.

Griffiths, M.D. (2013). Financial trading as a form of gambling. i-Gaming Business Affiliate, April/May, 40.

The ‘In’ Crowd: Is there a relationship between ‘in-play’ betting and problem gambling?

For those of us who watch football on the television in the UK, it is almost impossible to watch a game without seeing the many gambling adverts alerting us to the fact we can now bet on over 60 ‘in-play’ markets while watching the game. Should I wish to, I can bet on everything from who is going to score the first goal, what the score will be after 30 minutes of play, how many yellow cards will be given during them game and/or in what minute of the second half the first free kick will be awarded.

‘In-play’ betting is arguably the fastest growing form of gambling in the UK and the UK’s leading ‘in-play’ bookmaker Bet 365 made over £500 million last year. One of the issues I have been asked by the press is to what extent ‘in-play’ betting can be problematic. One of the interviews I did recently was with the Mail on Sunday who published some of my comments yesterday in an article entitled Risky business: With the advent of online gambling, are we creating an epidemic of addiction? ’I was quoted as saying:

‘What the in-play markets have done is take what was traditionally a discontinuous form of gambling – where you make one bet every Saturday on the result of the game – to one where you can gamble again and again and again. You cannot become addicted to something unless you are constantly being rewarded. If the reward only happens once or twice a week, it’s impossible to become addicted. In-play has changed that”

This indeed was a good summary of the interview I did. In-play betting is something that many of us in the problem gambling field are keeping an eye on because it’s taken something that has traditionally been a non-problem form of gambling to something that is more akin to betting on horse racing. At a typical Gamblers Anonymous group, you will get horse racing addicts, slot machine addicts, casino addicts, but it was rare that you got anyone ever having problems with things like football betting, mainly because football betting opportunities were once a week on the pools or betting before the match on a Saturday afternoon.

As I noted in my published quote above, if the reward for gambling only happens once or twice a week, it is completely impossible to become addicted. In-play has changed that because we now have football matches on almost every day of the week making a daily 2-hour plus period of betting seven days a week. As a psychologist who has researched problem gambling for over 25 years, I would assess the structural characteristics of this type of activity and associate it with the type that causes problem gambling for those that are vulnerable and susceptible. So why do I think this?

When considering speed and frequency of gambling in relation to problem gambling, concepts such as event duration, event frequency and payout interval can often be misunderstood and applied in the wrong context. Often, these are mistaken for having the same meaning. Furthermore, concepts such bet frequency and event duration are often ignored despite their importance of their role in the speed and frequency of betting. All of these terms refer to slightly different aspects of gambling although they are all implicated factors that affect speed and frequency.

Event duration essentially refers to how fast the “event” is (i.e., the speed of a gambling activity such as a reel spin on a slot machine that typically lasts for a few seconds). Professor Alex Blaszczynski and his colleagues at the University of Sydney (Australia) noted that gamblers prefer faster speeds and find fast speeds while playing more enjoyable. Therefore, they argued that gamblers’ motivation to play could encourage more persistent gambling activity. Another study by Professor Ladouceur and Dr. Serge Sevigny at the University of Laval (Quebec, Canada) investigated the effects of slot machine game speed on concentration, motivation to play, loss of control, and number of games played on people randomly assigned to either a high-speed (5 seconds) or a low-speed (15 seconds) gambling condition. Their results showed that high-speed gamblers played more games and underestimated the number of games played more than low-speed gamblers. However, speed didn’t influence concentration, motivation, or loss of control over time or money. Despite many methodological limitations they concluded that speed had limited impact on occasional slot machine gamblers.

A paper by Dr Kevin Harrigan and Dr. Mike Dixon (University of Waterloo, Canada) estimated the speed of slot machine play on slot machines. On a machine with a reel spin of every six seconds, players can play 10 times per minute, (i.e., 600 spins per hour) whereas those on a machine with a reel spin of every three seconds, players can play 20 times a minute (i.e., 1200 spins per hour). I also found similar results in research I carried out on British slot machines in the late 1980s and early 1990s.

It is important to acknowledge that duration of the betting event is different from event frequency. However, they may be inextricably linked in so much as the length of a betting event will obviously limit the frequency with they can take place. For example, a betting event lasting two hours (e.g., wagering only on the final outcome of a football game) could not have an event frequency greater than one in any 2-hour period, but a roulette spin (lasting approximately 5-6 seconds) may have an event frequency of several hundred in the same two-hour period. Furthermore, as a result of the introduction of in-running or situational betting (i.e., ‘in-play betting’) this relationship is even less clear.

Event frequency refers to the number of events that are available for betting in any given time period. For example, a lottery draw may occur twice a week but an electronic keno lottery draw may occur 100 times per hour. In this example, a keno lottery draw has a higher event frequency. Bet frequency, on the other hand, refers to the number of bets or wagers placed in any given time period. Using the lottery again as an example, multiple tickets (e.g., 10 tickets) can usually be purchased as frequently as desired before any single lottery draw. So here bet frequency would be equal to 10 but event frequency would be equal to 1. Therefore, bet frequency can often be higher than event frequency and hence, it is possible to spend more than one can afford even with a low event frequency.

The relationship between bet frequency and event frequency needs further empirical investigation. As researchers and clinicians, we often make the assumption the two have a strong relationship; the higher number of betting events – the higher the frequency of betting. Until more research is forthcoming a definitive answer is currently not available. Although, players can place many bets on just one gambling event, the outcome of this event can influence future betting activity. By outcomes, we are essentially referring to winning or losing. Losing can often create financial and emotional motivation to continue betting (i.e. chasing). It could be speculated that the satisfaction from winning may reduce motivation for further betting in the short-term, or it may increase betting as a result of increased bankroll, illusions of control and/or cognitive biases. Therefore, a higher event frequency not only offers more opportunity and choice for betting, but also affects motivation for betting through revealing consequential wins and losses at the end of each event. However, it should also be noted that betting frequency is also impacted by other factors (e.g., peer pressure, time constraints to gamble, etc.).

So does the speed of a game influence the prevalence of problem and pathological gambling? Based on the relationship between event duration, event frequency, bet frequency, and payout interval, empirical research has consistently shown that games that offer a fast, arousing span of play, frequent wins, and the opportunity for rapid replay are those most frequently cited as being associated with problem gambling. The actual prevalence rate of problem and pathological gambling will of course depend on many other factors than speed of the game alone, but games with high and rapid event frequencies such as slot machines are most likely to impact on increased rates of problem and pathological gambling. In-play betting appears to be an activity that is starting to blur the lines between continuous and discontinuous forms of gambling.

Frequency of opportunities to gamble (i.e., event frequency) also appears to be a major contributory factor in the development of gambling problems. The general rule is that the higher the event frequency, the more likely it is that the activity will result in gambling problems. Addictive behaviours have been shown to be associated with the rewards and the speed of rewards and payout rates. Therefore, the more potential rewards there are, and the higher the amount of the rewards, the more problematic the activity is likely to be. Given the time, money and resources, a vast majority of gambling activities are “continuous” in that people have the potential to gamble again and again. Therefore, in relation to problem gambling, in-play betting is an activity that we really need to keep an eye on.

Dr Mark Griffiths, Professor of Gambling Studies, International Gaming Research Unit, Nottingham Trent University, Nottingham, UK

Additional input by Dr. Jonathan Parke (Salford University, UK)

Further reading

Blaszczynski, A, Sharpe, L., & Walker, M. (2001). The Assessment of the Impact of the Reconfiguration on Electronic Gaming Machines as Harm Minimization Strategies for Problem Gambling. Report for the Gaming Industry Operators Group, University of Sydney Gambling Research Group, Sydney

Griffiths, M.D. (1993). Fruit machine gambling: The importance of structural characteristics. Journal of Gambling Studies, 9, 101-120.

Griffiths, M.D. (1994). The role of cognitive bias and skill in fruit machine gambling. British Journal of Psychology, 85, 351-369.

Griffiths, M.D. (1999a). Gambling technologies: Prospects for problem gambling. Journal of Gambling Studies, 15, 265-283.

Griffiths, M.D. (2008). Impact of high stake, high prize gaming machines on problem gaming. Birmingham: Gambling Commission.

Harrigan, K. & Dixon, M. (2009). PAR Sheets, probabilities, and slot machine play: Implications for problem and non-problem gambling. Journal of Gambling Issues, 23, 81-110.

Ladouceur. R., & Sévigny, S. (2005a). The impact of video lottery game speed on gamblers. Journal of Gambling Issues, 17.

Loba, P., Stewart, S. H., Klein, R. M. & Blackburn, J. R. (2002). Manipulations of the features of standard Video Lottery Terminal (VLT) games: Effects in pathological and non-pathological gamblers. Journal of Gambling Studies, 17, 297-320.

Parke, J. & Griffiths, M.D. (2006). The psychology of the fruit machine: The role of structural characteristics (revisited). International Journal of Mental Health and Addiction, 4, 151-179.

Parke, J. & Griffiths, M.D. (2007). The role of structural characteristics in gambling.  In G. Smith, D. Hodgins & R. Williams (Eds.), Research and Measurement Issues in Gambling Studies (pp.211-243). New York: Elsevier.