The paper summarized this week got a lot of press when released last month because it sounds, sort of, TED-talkie-right.
In a nutshell it tries to show that color, particularly the color red, negatively affects investment decisions.
The researchers, William J. Bazley, Henrik Cronqvist and Milica Mormann from the universities of Miami and Southern Methodist respectively start with another, sort-of-sounds-right, premise that human beings are genetically coded to avoid red. Nobody likes the sight of blood, fires are to be kept away from and an angry red face could often have been the precursor to a rock being directed shortly at yours. Makes sense, right?
Except it’s to leave unexplained most people’s good opinion of red roses, sunsets, cherries, apples, , Ferraris and, in the case of most males, members of the opposite sex in red swimsuits (OK, something else may be going on there)?
To test their theory they designed an experiment where combinations of risky decisions are put up to test subjects to see if framing the questions in red or black affects the outcome; and they found it does.
In addition to the wobbliness of the initial premise there are a couple of other serious problems with this work. The first is that the study was carried out using Amazon’s Mechanical Turk or MTurk [More on that at MTurk] which only gets responses from those with a U.S. postal address. The second is when they repeat their experiment with respondents from China (where red is generally associated with good things; red-packets=money, red lanterns=parties, red flags=the Party/nation) the effect all but disappears.
The study will have value to some financial practitioners in the U.S. as it shows clearly Joe and/or Jojo Schmo in Idaho are likely to be negatively affected if you frame a financial proposition to them using too much red in your pitch. As for having any more general application? To apply the conclusions across whole population or ethnic groups would probably be very dangerous.
What would happen I wonder if you were to make the same red-rich pitch a group of CFA charterholders? If China based I think they may well be inclined to view the opportunity favorably.
You can access the paper in full via this link In The Red.
Happy Sunday.