New research shows that color can have a significant influence on investor behavior, writes Jason Zweig in a recent Wall Street Journal article.
According to Zweig, researchers have found that “seeing red has a drastic effect on how people view investments.” One part of the research, says Zweig, shows that when investors looked at charts of stocks in the S&P 500 index with falling prices and predicted how the shares would perform in the subsequent six months, “those who saw charts in red, rather than black, projected significantly lower returns.”
The findings, says Zweig, supports economist Richard Thaler’s theory that investor behavior is heavily influenced by “supposedly irrelevant factors” arising from emotions—what psychologists call “unconscious biases.”
“Red stands for anger and danger, stoplights and stop signs, hot stoves, firetrucks, warning lights and panic buttons,” writes Zweig. While he clarifies that the color does not always connote the negative (mentioning strawberries and roses as two upbeat examples), he says that the general association is of risk, while that of green is safety.
Zweig shares the view of etymologist Barry Popik, who says that Americans have used the phrase “in the red” to represent financial losses since at least the 1920’s.