The ability to form accurate beliefs about what is happening in our world is key to our success as citizens, consumers, and of course as investors. Still, our ability to form and update beliefs sometimes goes badly wrong.
Misinformation and fake news has been getting plenty of attention following the election of President Trump. The impact stretches much wider. It affects political developments elsewhere in the world and matters a great deal in commodity and other financial markets.
Fake news is completely made up and designed to deceive readers to maximise traffic and profit. But the definition is often expanded to include websites that circulate distorted, decontextualised or dubious information that doesn’t reflect the facts of the story, or undeclared bias.
There is nothing new about fake news. Elaborate hoaxes designed to sell newspapers emerged in the US press in the 19th century. In 1874 The New York Herald gave an account of a bloody escape of wild animals from the Central Park Zoo. The article reassured readers by wrapping up with: “Of course the entire story given above is a pure fabrication.”
High quality media outlets compete to provide high quality journalism, fast. They also face a reputation cost and so invest resources to ensure they are perceived as high quality.
Producers of completely fabricated news are different. They have no need to make any investment in ensuring that their reporting is accurate. All they need is a vivid imagination. Unlike the story of wild animals escaping from Central Park Zoo modern fake news doesn’t tend to come with the same footnote warning of its fabrication!
Media consumers cannot always distinguish between high and low quality media providers. Articles are often tailored to pull on the readers psychological utility – whether that is political bias, fear or greed related to the markets or pure entertainment.
The motive behind most fake news is to cause a spike in web traffic and capture the resulting advertising clicks. The motive behind fake financial media could be to ‘pump-and-dump’. Build up a position, spread fake news that is likely to spike the price, and then sell into it.
The motives behind fake news may be much more nefarious than increasing traffic to a website and moving the price of assets. To sway the direction of elections, cement the power of those in position of power, and to destabilise those who others wish to weaken. The first casualty in war is usually the truth with the first skirmishes often used to justify use of greater force in retaliation.
That leads us to the events of 12th May. On that Sunday reports began to emerge of explosions from four crude oil tankers near the port of Fujairah in the UAE. Initially reported by websites with a reputation for spreading propaganda and then by other media networks in the region.
Conflicting reports began to emerge of what happened. While the port authorities in Fujairah denied the reports, UAE authorities disagreed, suggesting that there had indeed been sabotage. Reports from Saudi Arabia meanwhile indicated that two of the vessels were Saudi.
‘Officials’ from the US and neighbouring countries were quick to blame the attacks on Iran. Headlines around the world proclaimed that Iran was behind the attack. Eyewitnesses reported seeing huge explosions. Brent crude prices jumped over a dollar to over $72 per barrel when markets opened on the Monday morning.
Despite the uproar there was little or no evidence to support any of the claims. The most telling of all was satellite footage of the area which showed zero sign of any explosion. Samir Madani from Tanker Trackers picked up the story, outlining the evidence – or lack thereof. Check out Samir’s summary from 12:30 below.
Propaganda has always been a tool for political powers to bend the consent of the people to their will. That will never change. Yet the events of 12th May offer an important lesson in how participants (whether active or passive) should react to events which could have wide ranging political consequences. One that we should all be very careful to guard against.
An increase in the supply of fake news has a detrimental impact on the supply of legitimate news. The economist George Akerlof illustrated how a dodgy used car market can infect the market for well functioning cars. The same can happen in the market for news. In a market where buyers have imperfect information (your typical trader or investor), while sellers possess a profit motive the markets tend to be thin, insubstantial and poor quality. Investors could then become more sceptical of every piece of news.
This is exactly what a recent study by Yale University found. Researchers examined the financial markets reaction to fake news published on crowd sourced financial media platforms Seeking Alpha and the Motley Fool. The revelation of the existence of fake news resulted in an immediate decrease in the markets reaction to all news published on social media platforms, even if it was a legitimate report. Encouragingly they found that trading activity didn’t decline in response to news published by authoritative sources.
So what are some of the ways that you can increase your chances of spotting misinformation and fake news on “FinTwit”, other social media and in the mainstream financial market media?
- Find out about the source: Look at the website where the story comes from. Is the story well-presented? Are the images clear? Is it well written without any spelling errors or exaggerated language (e.g. capitalised text)? If you’re not sure, try clicking on the “about us” section, and check that there’s a clear outline explaining the work of the organisation and its history.
- Look at the author: To check if they are real, reliable and “trustworthy”, look for other pieces they have written and what outlets they have written for. If they haven’t written anything else, or if they write for websites that look unreliable, think twice about believing what they say.
- Check for linguistic traits associated with honesty: Truth-tellers tend to use more self-reference words and use longer sentences compared to liars. When people lie, they tend to distance themselves from the story by using fewer “I” or “me” words. Liars use fewer insight words such as realise, understand, and think, and include less specific information about time and space. Liars also tend to use more discrepancy verbs, like could, that assert that an event might have occurred.
- Check for references: Authoritative articles should link to other news stories, articles and authors. Click on the links and check if they seem reliable and trustworthy. Reports of an official or an anonymous source could, and probably are made up.
- Check the dates: Have the articles been edited or changed in some way? The emphasis of a story may change significantly from how it was originally published. This doesn’t necessarily mean that it is false, but it could mean that you should be cautious about the motives of the media outlet.
- Do a Google Reverse Image Search: Check to see all the other web pages that have similar images. This then tells you the other sites where the images have been used – and if they’ve been used out of context. Beware that some websites may use old photos as evidence.
- Social media check: Look up the source on Facebook or Twitter. Do they use misleading, sensational or provocative language? If yes it may mean they have exaggerated the ‘truth’ in the story.
- Trust, but verify: You will find plenty of honest, hardworking experts on Twitter trying to uncover the truth and share it with the wider world. Unfortunately, you also find people that look to spread misinformation and propaganda too. So be careful who you trust.
- Check if the story is being shared on any other mainstream news outlets: If it is, then you can feel more secure that the story is not fake news. Organisations such as the BBC take special care to check their sources and very rarely publish a story without having a second source to back it up. Although everyone makes mistakes sometimes.
- If you have any doubts about the credibility of a story there is something you can do about it. Don’t share it: By sharing it you automatically give it a wider audience, but you also lend it a little extra credibility.