In the Red: The Effects of Color on Investment Behavior

Bazley, William J.; Mormann, Milica

doi:10.2139/ssrn.2992812

Cited by 23 publications

(12 citation statements)

References 53 publications

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“…Fourth, in our initial experiment we displayed people's prior belief using a red bar and the professional forecast using a yellow bar. In robustness experiment 3, we instead display people's prior with a blue bar, and the professional forecast with a yellow bar, which potentially helps to avoid giving respondents the impression that their priors are the "wrong" beliefs (Bazley et al, 2018). Our estimated learning rates from professional forecasts of 5 percent and 30 percent from robustness experiment 3 are remarkably close to our estimates from the main experiment (Table A18 column 3).…”

Section: Robustnesssupporting

confidence: 52%

How Do Expectations about the Macroeconomy Affect Personal Expectations and Behavior?

Roth

Wohlfart

2020

Review of Economics and Statistics

209

121

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Using a representative online panel from the US, we examine how individuals' macroeconomic expectations causally affect their personal economic prospects and their behavior. To exogenously vary respondents' expectations, we provide them with different professional forecasts about the likelihood of a recession. Respondents update their macroeconomic outlook in response to the forecasts, extrapolate to expectations about their personal economic circumstances and adjust their consumption plans and stock purchases. Extrapolation to expectations about personal unemployment is driven by individuals with higher exposure to macroeconomic risk, consistent with macroeconomic models of imperfect information in which people are inattentive, but understand how the economy works.

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Section: Robustnesssupporting

confidence: 52%

How Do Expectations about the Macroeconomy Affect Personal Expectations and Behavior?

Roth

Wohlfart

2020

Review of Economics and Statistics

209

121

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“…Finally, as shown in Figure 1, when the brokerage company added the capital gain variable to the trading screen, it also changed the font color for winning stocks from blue to red. Similar to the exogenous attention mechanism discussed above, this may have increased the salience of the sign of the capital gain, which investors then assigned a higher weight in their decision process (Bazley, Cronqvist, and Mormann (2018)). We note, however, that font color cannot explain our crosssectional results because we measure the rank effect in the period before the display change when there was no variation in font color.…”

Section: Potential Mechanismsmentioning

confidence: 98%

The Impact of Salience on Investor Behavior: Evidence from a Natural Experiment

Frydman¹,

Wang

2019

The Journal of Finance

180

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We test whether the display of information causally affects investor behavior in a high-stakes trading environment. Using investor-level brokerage data from China and a natural experiment, we estimate the impact of a shock that increased the salience of a stock's purchase price but did not change the investor's information set. We employ a difference-indifferences approach and find that the salience shock causally increased the disposition effect by 17%. We use microdata to document substantial heterogeneity across investors in the treatment effect. A previously documented trading pattern, the "rank effect," explains heterogeneity in the change in the disposition effect.

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“…Previously, numerous studies have provided evidence that the service is a feasible alternative for traditional lab settings in behavioral research (e.g., Paolacci and Chandler 2014, Mason and Suri, 2012, Crump, McDonnell, and Gureckis, 2013. The MTurk service has also been successfully used in prior finance research (e.g., Blankespoor et al 2017, Bazley, Cronqvist and Mormann, 2016, Ke, 2017. As a research method, MTurk allows us to get a large number of ratings, mainly from Americans (who are unlikely to know any of the startups at Slush beforehand), at a relatively low cost.…”

Section: Datamentioning

confidence: 99%

“…We also contribute to the question of whether early-stage investors care about the "jockey or the horse", i.e. the team or the idea (Kaplan, Sensoy andStrömberg, 2009 andBernstein, Korteweg andLaws, 2017): if the appearance of the team affects funding decisions, then the team must play a role, though possibly subconsciously.…”

Section: Introductionmentioning

confidence: 99%

Perfect Pitch: Appearance in Entrepreneurial Pitching

Koivisto¹,

Paaso²

2018

GMFC

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We examine the impact of first impressions and entrepreneurial appearance on financing outcomes using a large sample of real investment pitches from a major European startup event. We ask noninvestors on Amazon's MTurk to rate entrepreneurial pitches on three dimensions: the appearance of competence, trustworthiness and attractiveness and test whether these ratings are associated with the probability of a company receiving early-stage investment. Companies run by entrepreneurs who are rated as one-standard-deviation more competent looking are almost 20% more likely to receive funding. The other measures of appearance, such as the appearance of trustworthiness and attractiveness as well as an overall "Perception"-measure (which averages all three ratings) also have some predictive power. All in all, the evidence suggests that first impressions and appearance can lead to improved financing outcomes for startups despite the extensive due diligence that goes into early-stage investments.

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In the Red: The Effects of Color on Investment Behavior

Cited by 23 publications

References 53 publications

How Do Expectations about the Macroeconomy Affect Personal Expectations and Behavior?

How Do Expectations about the Macroeconomy Affect Personal Expectations and Behavior?

The Impact of Salience on Investor Behavior: Evidence from a Natural Experiment

Perfect Pitch: Appearance in Entrepreneurial Pitching

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