New research out of the University of Kansas may help senior living operators rock their next investor presentation.
Although most people associate the phrase “seeing red” with anger, using the color to represent financial data can lead investors to delay important financial decisions, suggests a new study led by William Bazley, Ph.D., an assistant professor of finance at the University of Kansas. Over the course of eight experiments, Bazley’s research showed that red negatively affects individuals’ risk preferences, expectations of future stock returns and trading decisions.
“Our findings suggest the use of the 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.”
Most surprisingly, he noted, the color red appears to prolong pessimistic expectations in relation to negative stock returns, whereas viewing the same information in black or blue leads to reversal beliefs.
“This suggests the use of color may have broad implications for stock market liquidity during times of crisis,” he said.
The researchers noted that 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 journal Management Science.
