By PATRICK CAIRNS
For nearly two decades, a debate has been going on in the world of sports psychology. The question is whether the colour that an athlete or sports team wears can impact performance.
The question was first asked by Russell Hill and Robert Barton in a paper they wrote for the journal Nature in 2005, entitled Red enhances human performance in contests. Looking at the results from four combat sports during the 2004 Olympics, Hill and Barton found that those wearing red won significantly more often than those wearing blue.
This led them to conclude that wearing red might improve an athlete’s chance of winning.
In the years since, there have been more studies that seem to support these findings. A 2008 paper by Norbert Hagemann, Bernd Strauss and Jan Leißing came to the particularly interesting conclusion that colour could affect referees. They suggested that referees have a perceptual bias towards competitors wearing red and are likely to judge in their favour more often.
The colour of danger
However, it’s not only in sports where colour has an influence. A study published this year by William Bazley, assistant professor of finance at the University of Kansas, argued that colour also has an impact on investors.
Once again, the colour that came under scrutiny was red.
“Our findings suggest the use of colour deserves careful consideration when it’s to be used on financial platforms, such as brokerage websites or by retirement service providers,” Bazley wrote. “For instance, the use of colour could lead to investors avoiding the platform or delaying important financial decisions, which could have deleterious long-term consequences.”
This is because we all have associations with particular colours. Red is the colour of danger, stop signs and “red flag” warnings. It is also the colour teachers use to mark work at school.
Under the influence
In finance, when market prices go down, this is referred to as being ‘in the red’. The media also routinely illustrates market falls in bold, red graphics.
All of this appears to make investors react a certain way when they see information presented in this colour. Bazley noted that when stock market returns are written in red, this prolongs pessimism in people when compared to how they react to the same information presented in black or blue.
The reason this is interesting is not just about colours. As Bazley wrote:
“Much like our everyday choices, our financial decisions are likely to be shaped by factors which are not specific to the decision at hand.”
The fact is that no matter how rational we think we are when it comes to making financial decisions, we are constantly being influenced by things that we don’t even know about. Something as simple, and seemingly irrelevant, as the colour in which something is written can impact our choices.
The idea that anyone can be entirely objective and analytical in any decision is therefore a mirage. Our minds are so complex that we are taking in and processing information on all sorts of levels, many of which have nothing to do with cold, hard facts.
This is why one of the most often repeated pieces of financial advice is also the most important: stay invested for the long term.
Put another way: make one big decision and stick with it, rather than trying to make a series of decisions over time. That is because the more decisions you make, the more chance you have of being influenced by external factors that have nothing to do with what you are actually trying to achieve.
One of South Africa’s most respected financial journalists, PATRICK CAIRNS is a trusted commentator on the world of investments and the quirks of behavioural finance. Over more than a decade he has built a reputation for keeping the industry honest, and putting the interests of investors first.
Here are some more articles by Patrick Cairns:
Clarity in investing is not the same as certainty
Don’t let your investments go the way of the CD
Can you change your mind about money?
Should you invest in a dividend ETF?
Can you measure your financial wellbeing?
Why investing is more like golf than football
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