In life, we often search for complex answers and deeper, hidden meanings. Sometimes, though, things truly are as simple as they appear. Case in point, a new study recently released by the University of Kansas.
KU researchers report the color red, a hue associated with errors, negativity, and stopping in Western culture, can have a big impact on financial and investment decisions. According to the research, when an investor sees red that sight almost always influences their “risk preferences” and financial expectations.
In simpler terms, banks, brokerages, and financial institutions of all kinds should avoid the use of red. This research suggests the color sends a subliminal message to investors that they’re going to lose money.
It’s important to note that this is a uniquely Western phenomenon. Chinese citizens do not share the same response to red, because in China red is associated with wealth and prosperity, not stop lights and losses. Literally, the term “in the red” refers to a person, organization, or stock losing money.
“Our findings suggest the use of color deserves careful consideration when it’s to be used on financial platforms, such as brokerage websites or by retirement service providers,” explains study author William Bazley, assistant professor of finance at the University of Kansas. “For instance, the use of color could lead to investors avoiding the platform or delaying important financial decisions, which could have deleterious long-term consequences.”
“In Western cultures, conditioning of red color and experiences start in early schooling as students receive feedback regarding academic errors in red,” he adds.
Regarding money matters specifically, study authors were shocked at just how much a simple color change influenced investor decisions. They say that when red was used to display diminishing stock returns viewers were much more pessimistic about the stock’s long-term outlook. If blue or black was used instead the very same investors had a more positive outlook on the stock’s future.
“This suggests the use of color may have broad implications for stock market liquidity during times of crisis and the momentum anomaly,” Bazley comments.
A total of eight experiments were conducted to reach these conclusions, encompassing 1,451 volunteers.
This study just goes to show how tiny details that you may not even consciously notice often end up holding serious influence over decisions and choices. Investing and buying stocks (or any kind of financial asset for that matter) is an especially volatile endeavor, and it’s common to hear seasoned traders talk about “going with their gut” or “feeling it in the moment.” While no one can truly dispute such assertions, who knows what is really influencing those “gut decisions.” Perhaps something as trivial as the color used for a chart.
“Much like our everyday choices, our financial decisions are likely to be shaped by factors which are not specific to the decision at hand,” Bazley concludes. We are still at the early stages of understanding these dynamics, but learning about them has the potential to yield insights that could ultimately improve the outcomes individuals realize from their decisions.”
The full study can be found here, published in Management Science.