Two small design choices on trading apps, the colour of the numbers and the gesture used to place a trade, can change how much people invest. Investors put the most money into a company when its information was coloured green and they could swipe to trade, even though the underlying business was exactly the same.
The study, by Stephanie M. Grant, Jessen L. Hobson and Roshan K. Sinha, was published online on November 8, 2023 in Management Science.
Testing what regulators worry about
The US Securities and Exchange Commission uses the term digital engagement practices for the visual cues and design features that trading platforms use to keep investors engaged. As mobile trading has grown, regulators have worried that these features could lead retail investors to trade in ways they otherwise would not.
The researchers ran an experiment on two common ones: showing performance in green or red, and letting investors execute a trade with a swipe instead of clicking and then confirming. Firm economics were held constant, so any difference came from the design alone.
Swiping works only in green
The largest investments came when participants swiped to trade and the firm information was green. Clicking and confirming, or seeing the information in red, led to smaller investments.
Swiping made investors focus more on the upside of investing, but only when the information was green. Red muted the swipe effect: it put investors in a more negative mood and drew their attention toward the downside.
The authors say the study answers calls from regulators and academics to examine how technology shapes the way investors evaluate information, and that the findings have practical implications for the people using these apps.
Study Details:
- Title: Digital Engagement Practices in Mobile Trading: The Impact of Color and Swiping to Trade on Investor Decisions
- Authors: Stephanie M. Grant, Jessen L. Hobson, Roshan K. Sinha
- Journal: Management Science
- Publication Date: November 8, 2023
- DOI: 10.1287/mnsc.2023.00379