Red light, green light: Color priming in financial decisions

Colors are widely present in the financial decision making arena: at firms’ and data providers’ websites; television reports; newspaper publications; advertizements; security market displays, with colors such as red and green prominently employed. Our experimental analysis involves a between subject design exposing subjects to financial substance on colored backgrounds and exploring the effect on their investment decisions. We focus on financial decisions under uncertainty about probability, examining subjects’ investment valuations and the probabilities they assign to the possible outcomes.This study explores the role of color exposure as a priming factor in financial decision making. Priming is a process of activating particular connections or associations in memory prior to carrying out an action or task. The associations occur when a certain stimulus or event increases the availability of specific information categories and, as a result, affect decision making.The results indicate that red color priming emphasizes value losses of the underlying asset. To wit, subjects who were exposed to red (R) assigned higher valuations and probabilities to events involving the loss domain, than to events involving the gain domain, relatively to the valuations assigned by subjects who were exposed to green (G). The aggregated evaluation given by the R subjects when the investment payback was subject to negative (positive) underlying asset returns was higher (lower) than that of the G subjects by roughly 15% (19%) of the invested amount.

► Research demonstrates that human decision behavior is sensitive to various contextual factors.
► We focus on the role of color cues on financial decisions under uncertainty.
► We hypothesize that colors play a role as priming cues, affecting thereby investors’ decisions.
► Our between subject design exposes subjects to financial substance on colored backgrounds.
► Results indicate that red color priming emphasizes value losses of the underlying asset.