Abstract
We investigate the impact of vividness on trading behavior in an experimental asset market, by contrasting vivid with pallid presentation of information. Vivid information is characterized as emotionally engaging and proximate, while pallid information is purely factual. Our design enables us to isolate the effect of vividness by controlling the content of the information irrespective of the presentation. We find that vividness elevates investor attention, as measured through order-book composition and market variables. Interestingly, vividness can both distract as well as focus investors’ attention depending on the nature of the underlying information. We also find evidence that vividness has a catalyzing effect on existing behavioral biases. Independent of information content, vividness exacerbates difference of opinion amongst investors with heterogeneous priors. In addition, we find that strong market sentiment develops when a large proportion of overconfident investors receive prior-confirming information in a vivid manner. This results in the concurrence of high sentiment, returns and turnover.
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