Using the color red to represent financial data influences individuals’ risk preferences, suggesting it deserves careful consideration when it’s to be used on financial platforms, such as brokerage websites or by retirement service providers.

William BazleyThat’s the premise behind a new article by William Bazley, assistant professor of finance at the University of Kansas.

«Visual Finance: The Pervasive Effects of Red on Investor Behavior» reveals that using the color red to represent financial data influences individuals’ risk preferences, expectations of future stock returns and trading decisions. The effects are not present in people who are colorblind, and they’re muted in China, where red represents prosperity. Other colors do not generate the same outcomes.

The article appears in the current issue of Management Science.

«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,» Bazley said. «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.»

Co-written by Henrik Cronqvist at the University of Miami and Milica Mormann at Southern Methodist University, the article demonstrates how evolutionary biology and social learning are what creates this color-coded behavior. With regards to Western culture, it’s possible that social learning has reinforced biological underpinnings. Specifically, the physical and psychological context in which color is perceived influences its meaning and human responses to it.

Story Source:
Materials provided by University of Kansas. Original written by Jon Niccum. Note: Content may be edited for style and length.