As investors we like to think we’re acting rationally, even though there are mountains of evidence to show that, all too often, we’re not.
A successful day at the office — clinching a contract or hitting a sales target — can make us overconfident about our own finances. A bad day can have the opposite effect. Strongest of all is the well-documented herd instinct, which drives even hard-headed professional fund managers to move as a pack.
The latest snippet to cross my desk is research showing that our decisions can be influenced even by colour, specifically red. A study by the University of Kansas finds that financial information supplied in red tends to make people more pessimistic about the market than the same facts in black or blue.
Examining data from 1,451 individuals, assistant professor William Bazley, says he is “most surprised” by the results, which could have wide implications for everybody from savers reading financial statements to brokers flogging investments.
Of all the colours surveyed, only red produced a strong response. Other hues…