In the Red: The Effects of Color on Investment Behavior
56 Pages Posted: 27 Jun 2017 Last revised: 30 Jul 2018
Date Written: July 29, 2018
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.
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