One study in 2017 found that showing investment losses in the color red reduces people’s appetite for risk, which may cause them to overreact to a falling stock or assume it will keep falling. By designĮven small choices that app designers make can affect behavior. Some people use this platform to make a living,” said Jeffrey Pederson, a lawyer in Colorado who represents investors in disputes with brokers, including Robinhood.
If something goes wrong on the Robinhood app, “it’s not Facebook, where you can’t put your cat picture up. But the stakes behind addictive apps are different for photo sharing than they are for managing investments. It's our hope that the carefully-crafted Robinhood experience will inspire more and more people to start investing.”īack then, Silicon Valley was still celebrating the idea that startup businesses should try to grow as quickly as possible to reach a mass audience, a concept known as growth hacking. It determines the directions we take, the features we build, and the ways we communicate with our customers. In 2015, after Apple gave Robinhood an award for design, Robinhood said in a blog post: “Design is core to what we do. A ticker for bitcoin is prominent, as are quotes for stocks with big daily swings in price, while exchange-traded funds - a low-cost way of diversifying a stock portfolio - are difficult to find.
There are serious downsides to this if things go wrong.” Trade offsįinancial professionals point to what Robinhood has chosen to put on the first page of its app, and what it hasn’t. “All these new kids are coming in,” Shetty said.
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Prajwal Shetty, 39, an engineer in the Los Angeles area who has used Robinhood as well as other brokers, said that Robinhood is attractive to people who are just starting out in investing because it doesn’t charge commissions, making it appear to be free to use.īut he said the app offers a toxic combination for people who aren’t careful, with low bars to trading on borrowed money and on options, which are contracts that are easy for newcomers to lose money on. “Any sort of nudges that investors get through these technologies are affecting behaviors,” said Brad Barber, a finance professor at the University of California, Davis. The look of numbers showing a stock rising or falling or bursts of confetti matter because they can nudge users toward either long-term financial success or potentially problematic habits or speculative ideas, experts said. Financial professionals say those elements encourage people - many of them young and inexperienced - to celebrate day-trading and develop risky habits that will cost users money over time. The app has elements of fun, echoing in subtle ways the congratulatory elements of smartphone games that spur users to keep playing. Robinhood has said it’s democratizing America’s financial system because it doesn’t charge commissions to execute trades. Facebook and Instagram have been criticized for encouraging endless scrolling through social media feeds, while YouTube’s recommendations system that works to keep users watching has been blamed for pushing users toward videos of conspiracy theories and extremist rhetoric.
The way that tech companies design their apps - most notably the tricks they employ to spur user engagement - is under more scrutiny than ever before. “I liken it to giving the keys of a sports car to a 12-year-old,” said Tara Falcone, a certified financial planner and the founder of ReisUP, a financial education company. Rather than directing users to adopt a coherent strategy, the app pushes riskier options like individual stocks and cryptocurrencies - and even offers trading on borrowed money, known as margin, and options trading, both of which are used by advanced investors but carry extreme risk. By comparison, Robinhood’s technicolor interface encourages users to buy and sell investments in a slick, smartphone-native environment.īut personal finance experts who spoke to NBC News said that the app’s success comes with some risk for consumers, particularly those new to investing. While most financial services companies now offer mobile apps, they tend to be smaller version of their sober websites, geared at keeping users informed and educated while also offering the chance to trade. Its promise of zero-commission stock trades has helped it grow to more than 6 million users and a valuation of more than $5 billion. Robinhood, started in 2013, is the most popular of a wave of apps to have emerged in recent years that try to reinvent the previously staid world of personal finance for the smartphone era.