Digital Engagement Practices in Mobile Trading: The Impact of Payment Transparency and Color on Investor Decisions

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Abstract

Regulators and other capital market participants are concerned that the rise of mobile trading platforms using game-like features and other visual cues (e.g., color to highlight performance), collectively called digital engagement practices (DEPs) by the SEC, cause investors to trade in ways they otherwise would not. Using an experiment, we examine the impact of two common DEPs—payment transparency (i.e., the salience of cash outflow) and color (i.e., the use of green or red to indicate performance)—on investors’ investment amounts. While prior research suggests that lower payment transparency will unambiguously cause greater willingness to pay, we theorize that the color red will mitigate the impact of lower payment transparency. Consistent with expectations, results show that investors make the largest investment in the firm when they swipe to trade without having to confirm the decision (i.e., low payment transparency) and firm information is colored green, relative to when they click to trade and have to confirm the decision (i.e., high payment transparency) or firm information is colored red, holding firm economics constant. Lower payment transparency causes investors to focus relatively more on the upside of investing, but only when firm information is not colored red. When firm information is colored red, investors experience more negative affect and focus relatively more on the downside of investing. Our study has important practical implications for investors and regulators evaluating the costs and benefits of features of new stock-trading platforms, and also contributes to the academic literature examining the effects of technology on information evaluation in investment decisions.

Authors

• Stephanie Grant, University of Washington

• Jessen L. Hobson, University of Illinois at Urbana-Champaign

• Roshan Sinha, Indiana University - Bloomington