In the Red: The Effects of Color on Investment Behavior

56 Pages Posted: 27 Jun 2017 Last revised: 30 Jul 2018

See all articles by William J. Bazley

William J. Bazley

University of Miami

Henrik Cronqvist

University of Miami - Department of Finance

Milica Milosavljevic Mormann

Southern Methodist University (SMU) - Marketing Department

Date Written: July 29, 2018

Abstract

Financial decisions are made in environments that involve color. However, perception of color influences behavior. We show that displaying losses in red reduces risk-taking. Presenting historical stock price paths in red reduces investors' expectations about future returns and, consistent with red causing "avoidance behavior," investors' propensities to purchase stocks declines. Salience effects do not drive the findings and red color does not influence colorblind individuals' decisions. Red color does not serve as an information-signaling mechanism and the effects are muted in China, where red represents prosperity. Overall, we draw from color psychology and visual science to further understand investors' behavior.

Keywords: Color psychology, experimental finance, household finance.

JEL Classification: G11, G40, G41.

Suggested Citation

Bazley, William J. and Cronqvist, Henrik and Mormann, Milica Milosavljevic, In the Red: The Effects of Color on Investment Behavior (July 29, 2018). Swedish House of Finance Research Paper No. 17-16; SMU Cox School of Business Research Paper No. 18-4. Available at SSRN: https://ssrn.com/abstract=2992812 or http://dx.doi.org/10.2139/ssrn.2992812

William J. Bazley

University of Miami ( email )

Coral Gables, FL 33124
United States

Henrik Cronqvist (Contact Author)

University of Miami - Department of Finance ( email )

5250 University Drive
314-E Jenkins Building
Coral Gables, FL 33146
United States
(305) 284-9482 (Phone)

HOME PAGE: http://sites.google.com/site/henrikcronqvist/

Milica Milosavljevic Mormann

Southern Methodist University (SMU) - Marketing Department ( email )

United States

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