3 harmful investing biases that Pantone’s colour of the year can teach you about

Colour psychology is a school of thought that has been growing in importance over the past few decades. 

One company in particular — Pantone — has taken the science of colour to new levels through its establishment of the Pantone Colour Institute and its annual colour of the year, first released in 2000.

Pantone has become a leading authority on colour trends and forecasts how certain shades are likely to dominate aesthetics across various industries in the year ahead.

Read on to discover how Pantone’s latest colour might influence the 2023 marketplace and why understanding the psychology of colour can help you tackle psychological biases that may affect your investing decisions.

Pantone’s colour of the year will likely influence your purchasing decisions in the near future

In the years since its foundation, the Pantone Colour Institute has grown considerably into a highly trained, in-house research department supported by significant funding.

Third-party studies over the intervening years have shown Pantone’s colour of the year’s ability to forecast market trends and furthermore potentially influence their outcomes. 

The Pantone Colour Institute selects Viva Magenta for 2023

This year’s colour is “Viva Magenta”, a vibrant and rich shade of red. Pantone calls the shade a “new animated red that revels in pure joy”. 

It was inspired by some of the world’s most precious dyes and has robust burgundy undertones. Red tones can signify love, passion, and power. They have been noted to encourage impulsive behaviour — there is a reason why the colour red features so heavily in bar and nightclub lighting and décor.

Red tones can also represent wealth, and in Asian culture in particular, have lucky and success-driven connotations. Red invokes warmth and symbolises life, as blood runs red. 

In breaking down the colour’s purpose and psychology, we can start to understand how it might be used to influence products and purchasing choices in the near future.

Viva Magenta will likely see a rise in sales of certain products

We may see Viva Magenta influence the aesthetic design choices across many industries in 2023 including:

  • Fashion with sensual designs, vibrant summer outfits, and autumnal colours carrying on strongly throughout the winter months
  • Home décor, as interior design specialists push warmer schemes built around Viva Magenta or similar shades. This may include furniture options such as a rise in burgundy chesterfield sofas, deep red pillows or curtains, and perhaps rustic clay kitchenware
  • Food and drink, which could mean a surge in popularity of drinks like sangria, classic cocktails such as Cosmopolitans or Negronis, rich berry flavours, hearty stews, or desserts like red velvet cakes.

The colour may also end up influencing design choices across luxury goods such as popular car colours or the shade of your latest smart-phone.

Psychological biases can affect your investing decisions as well as your purchasing ones

Colour has the ability to manipulate the human brain on a subconscious level. Dr Alexander Schauss, director of the American Institute for Biosocial Research, first led studies into how certain shades of pink can have a calming, pacifying effect on populations. 

A shade known as “Baker-Miller Pink” was eventually used to decorate prison cells and was shown to reduce violent outbreaks in facilities, and lower inmates’ heart rates.

The human brain is vulnerable to all kinds of psychological biases that may affect your behaviours and decisions without your knowledge. This is true in the world of investing too.

3 harmful investing biases that colour psychology can teach you about

1. Confirmation bias

Confirmation bias is the natural human tendency to seek out information that confirms an existing belief or viewpoint. This can skew the data used to support a decision or that you were already in favour of making.

For example, in terms of colour psychology, you may already favour buying a specific brand of product, and you may draw assumptions from their branding that help support your decision. This could involve the packaging being very green, which you might take as a sign it is eco-friendly. You may use this as a basis for your purchase and choose to ignore information that contradicts your decision later.

In investing, this bias can create a sense of overconfidence in investors and may lead to potentially costly mistakes, as the risks of being blindsided by negative outcomes increases.

If you believe a particular investment is a “sure thing”, and go out and find evidence to support your theory, it will likely push you to commit to that particular decision. 

Ideally, you would seek information that undermines your assumptions and allows you to weigh up the pros and cons of any investing decision before going ahead with it.

2. Loss aversion

The theory of “loss aversion” posits that humans feel the pain of losses twice as much as the joys of gains.

In investing terms, when faced with the possibility of losses, you may unintentionally prompt a fear response that could result in emotionally guided decision-making. In simple terms, this means seeking out the choice that seems like it will reduce the possibility of losses as much as possible.

Colour psychology dovetails neatly with investment-based fears. For example, consider how seeing the colour red in relation to some of your investments might make you feel uneasy or induce a sense of panic.

In times of economic downturn, such as when a marketplace sharply dips, this might mean you seek to sell off your investments and lock in what was initially a paper loss into one that is definite. 

This removes the potential for further losses, but also that of an upturn in value if and when the market eventually recovers, and can hinder your progress towards long-term goals.

3. Herd behaviour bias

Herd behaviour happens when investors follow the choices and opinions of others rather than making their own informed decisions based on evidence and data. 

For example, if your close friends or colleagues are all investing in a certain stock, you may start to put too much emphasis on its value. 

Colour trends rely on herd behaviour. In flooding the market with certain shades, you will likely see your friends or loved ones with new products in trendy colours and feel pushed to make similar purchases yourself.

People feel safer when following the choices of the “herd”. There is also a worry about missing out, especially when investing, if all your friends end up making money on a stock that you choose to ignore.

However, there are plenty of examples of when herd behaviour has backfired such as the dot-com bubble, the 2008 real estate market crash, and, more recently, areas such as cryptocurrency or NFTs.

It is important to take a step back and view your investments logically rather than emotionally and avoid any potential psychological effects on your decision-making process.

Get in touch

If you are worried you might not be making the right decisions for your investments, it might be worth seeking professional advice to help you stay on track towards meeting your long-term goals. 

Email us at mail@delaunaywealth.com or call 0345 505 3500.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.