Color coding: green and red in finance
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2022-09-01
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en
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The visual presentation of information is becoming increasingly important in finance. In this paper, I investigate the relationship between the visualization of colors and risk aversion in financial decision making. I argue that viewing green in gains decreases risk aversion, whereas viewing red in losses increases risk aversion in a financial setting. I created six online experiments to measure risk aversion, using the Holt & Laury method: (1) visualizing gains in green (2) visualizing losses in red (3) visualizing everything in black, with (4), (5), (6) having the same set-up as the first three mentioned but a different design as a robustness check. The results show that, compared to black, green leads to more risky choices and red leads to less risky choices. This is, however, not significant. In the robustness check, compared to black, both green and red lead to less risky choices, but red more so than green. Nonetheless, only red is significant. This makes it difficult to come to an overall conclusion – but I do recommend more research regarding this topic as visual communication can have important implications for financial decision making.
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Faculteit der Managementwetenschappen