Visual Finance: The Pervasive Effects of Red on Investor Behavior

Abstract

The visual communication of financial information is commonplace and involves numerous facets, including the use of color. At the same time, perception of color influences behavior. Through eight experiments, we show that using red color to represent financial data impacts individuals’ risk preferences, expectations of future stock returns, and trading decisions. The effects are not present in colorblind individuals and are muted in China, where red represents prosperity. Other colors, including yellow and blue, do not generate the same effects. Overall, we demonstrate that simple perceptual processes influence complex investor behavior, which is important given society’s increasing reliance on visual communication. This paper was accepted by David Simchi-Levi, finance.