Psychology | Bias | Finance
SFU professor's research indicates investors can combat "fake news"
The rise of fake news goes hand in hand with that of social media as a key disseminator of information and has permeated many aspects of our lives, from politics, to public health, to financial information. The consequences range from mild to severe, including losing your life, or, in the case of investments, your life savings.
Retail investors are aware of the prevalence of fake financial news and view it as a threat to their financial decision making, especially considering the difficulty that individuals and capital market participants have detecting fake news. Further muddying the waters is the continued influence effect, which suggests that individuals will continue to unintentionally rely on false information even after they learn it is fake, and the fact that repeated exposure to fake information can further increase credibility perceptions.
For example, if an investor reads encouraging news about a firm’s performance, they’re likely to form positive inferences about that firm. If they later learn that the information is fake, then the continued influence effect suggests that they will continue to rely on their initial assessment, to some degree. Compounding this problem is the repetitive nature of social media – seeing the fake information retweeted often will further cement this perception in an investors mind. This all makes it incredibly difficult for individual investors to parse what’s true and false, and even more difficult to completely ignore the incorrect information.
Research from Assistant Professor Samantha Seto of SFU’s Beedie School of Business indicates that investors can mitigate the continued influence effect by being in a deliberative mindset when researching investments. A deliberative mindset is a lens that encourages individuals to assess information in a balanced manner, with a simple prompt to consider the pros and cons of an unrelated problem being enough to activate it.
In their working paper, Seto and her colleagues from the University of Washington found that being in a deliberative mindset eliminates the continued influence effect, by preventing the information from being deeply ingrained in investors’ minds. Crucially, this method has no effect on investors’ perceptions of news that was later revealed to be true.
Most investors are not in a deliberative mindset when considering an investment, but the fact that a simple prompt can put investors into that mindset is promising, due to how easy it is to implement. “We already have mindfulness apps,” Seto says. “I think it's possible that we could have an app that's focused on putting us into a deliberative mindset before we go on social media.”
It could also be as simple as a sticky note on your monitor, reminding you to keep a balanced mindset when reading information, or a browser extension that issues prompts based on detected content.
None of us are immune to fake news, even though we like to think we are. So the next time you venture to do research in order to make a decision, remember to take your deliberative mindset with you.
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