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Impact of fake news on the economy: how to prevent it ?

Fake news has a significant impact on the financial world and the economy. Find out why and how to protect yourself.

What is fake news ?

A contraction of "fake" and "news", this expression is the receptacle for all phenomena that pollute information. Although the principle of manipulating information dates to the 18th century and accelerated with the emergence of the print media, the expression of fake news only really emerged during the 2016 American election campaign. During this campaign, twenty fake election news stories generated 8,711,000 shares, reactions, and comments on Facebook. 

Because of this recovery of the term, which makes it lose some of its substance, as well as for accuracy, we can distinguish three types of misinformation, defined according to the degree of veracity of the information and the harm that comes from its dissemination. 

  • Misinformation corresponds to false information disseminated by an agent who thinks it is true. Rumors often fall into this category. 
  • Disinformation is the deliberate sharing of false information to cause harm. It is a constructed and targeted attack. 
  • Malinformation is the dissemination of genuine information to cause harm to a third party. This usually occurs after a data leak.

In sum, there is no universal definition for the term fake news as it brings together several concepts. Nevertheless, to give a framework, we could establish that it is misinformation aimed at deceiving the public to harm a third party for personal, political, or financial gain. 

How is fake news spread? 

While the term was originally a contraction of fake news, it can now be used to refer to the entire information ecosystem, as fake news can be created by a journalist or anyone else, such as a group funded by a political movement or activist. 

Thus, news extends beyond press articles to include statements and speeches, internal documents, online posts, and all types of information about public figures and organizations.

Moreover, if fake news is widely spread on online media, its virality is based on social networks and all digital sharing vectors, including private sharing and, for example, on Telegram, WhatsApp, or Messenger channels. 

The authors of disinformation can be states, political groups, companies, activists, and even individuals, depending on the nature of the false information published. It should be noted that the most powerful bodies need the smallest to spread their false information. 

While 10.1% of the traffic of traditional online media comes from social networks, this figure rises to 41.8% for "misinformation" sites, which often advertise themselves as defenders of free speech. To generate such traffic, the authors rely on relays such as Facebook groups, and fake accounts behind which bots are hidden, and do not hesitate to massively sponsor articles to reach their targets as widely as possible. 

This dissemination has become a parallel economy, which generated nearly $400 million in advertising revenue during the major national elections between 2016 and 2019, including $200 million in the United States (2016), $34 million in Brazil (2018), and $654,000 in France (2017). But politics is not the only area affected by this advertising misinformation phenomenon. In 2021, 36 million dollars were invested to spread climate skepticism. 

On Advertising Week in New York, which brings together 10,000 marketing and communication professionals, the Global Disinformation Index (GDI) published a report listing the event's partners who, despite themselves, monetize disinformation. While the aim is not to display these players, they must deploy all the tools to curb this phenomenon, which is generated by the opacity and complexity of online advertising networks, which are relays for scams. 

 

Why does fake news spread so quickly? 

 

In a 2018 study published in Science, three professors from the Massachusetts Institute of Technology (MIT) demonstrated that fake news spreads "farther, faster, deeper, and more broadly than the truth." In partnership with Twitter, the researchers studied all real and fake news that was verified on the network by six fact-checking organizations between 2006 and 2017. They found that fake news was 70% more likely to be retweeted than real news and that it reached the top 1,500 people six times faster.

In another study published in Nature in March 2021, the MIT Media Lab found that half of the false information spread online is unintentional by users who do not realize what they are sharing. Also, researchers determine that users of social networks or online media have a greater propensity to believe and then share information when it is close to their political beliefs. 

Let's not forget that fake news plays on the confirmation bias, which is a cognitive bias whereby a human will tend to select the information that confirms his or her beliefs, neglecting the elements that refute them and therefore the spirit of contradiction. In other words, the individual will more easily share strong, striking, or even unexpected information when it validates reasoning, an idea, or a conviction to which he or she subscribes. This phenomenon is particularly amplified by the hyper-information with which individuals are confronted. 

What are the impacts on returns on investment?

Given the context in which the term emerged, fake news is mostly associated with destabilization campaigns targeting governments, public figures, or social issues. However, their consequences on the economic environment and companies must not be overlooked and must be highlighted. 

This is the purpose of the study conducted jointly by the University of Baltimore and Cheq, entitled "The economic cost of bad actors on the internet" and published in November 2019. The study found that the economic cost of fake news for the same year would be $78 billion, of which $39 billion would be due to financial market volatility resulting from the emergence of false information. At the end of September 2022, the SEC, the US stock market regulator, charged a father and son with manipulating the price of a deli operator through a scheme that artificially inflated its valuation to more than $100 million, even though the company has annual revenues of no more than $40,000.

Also, financial misinformation is estimated to cost US companies $17 billion in 2019. This notion covers all informational manipulations aimed at distorting the analysis of economic actors in their decision-making. For example, the trials of Trevor Milton, founder of Nikola, and Elizabeth Holmes, creator of Theranos, are currently underway, two cases that illustrate the saying "fake it until you make it". Let's not forget that a start-up cannot usually offer a fully developed product in the short term. To develop its technologies, it often must raise funds to bring a product to market that meets the requirements. In the case of our two protagonists, the innovations they claimed to develop were not based on any scientific or technical validity. Both are charged with fraud, having deceived their investors and the public about the feasibility of their technologies. In 2015, a few months before the Wall Street Journal revelations and after raising $724 million over ten years, Theranos, which promised cheap, fast blood tests using little blood, was valued at $9 billion. The deal, which led to the company's liquidation, caused hundreds of millions of dollars in losses for investors, including the US government. 

Another easily identifiable harm is the damage to reputation, which is a major risk for any organization. The image and legitimacy of the organization in the eyes of its partners, customers, and the public are acquired through long and costly investments. A loss of reputation also leads to a loss of investor confidence and the flight of customers. On the other hand, it means that previous communication investments are not amortized, business volume is reduced and costly crisis communication is required. 

Financial institutions are also confronted with misinformation. In May 2019, Metro Bank was the victim of a disinformation campaign on social networks. Already in trouble and facing a drop in its stock market rating after the Bank of England regulator discovered an accounting error, the bank fell victim to a disinformation campaign initiated on an encrypted message. The message sent out urged people in the UK with accounts or safe-deposit boxes to empty them before the bank went bust. The propagation of this rumor only accentuated the bank's stock market plunge. The share price is still at its lowest point in 2022, ten times lower than in May 2019, even though the bank could return to profitability in 2024

This misadventure is reminiscent of that of Credit Suisse, which occurred at the beginning of October 2022, when private individuals massively bet on a further fall in the bank's share price, following the broadcast of a message invoking a forthcoming bankruptcy. Already in a difficult position, the bank paid 238 million euros on 24 October to avoid prosecution for aggravated tax fraud between 2005 and 2012 in France. This wave of misinformation is increasing the financial and reputational damage to the bank.

Information retrieval: the foundation of good investment

As the heart of economic activity, essential to the production of goods and services, the investment must be made with the broadest, most complete, and most accurate information possible. The exercise is akin to a forward-looking process in which information is critical. 

To evaluate an opportunity, the investor will establish a relationship between the current state of the structure and its development prospects. Therefore, the spectrum of information required extends from the current environment to scenarios that materialize the field of possibilities. This analysis contains three critical steps: data collection, analysis, and exploitation. 

Without going into the details of the financial valuation of a company, determining a valuation involves assessing the contribution of its product to the market. Then, it is necessary to establish as precisely as possible the factors that could contribute to the success of the project or harm it. This analysis covers the geopolitical and economic environment, consumer habits, and the availability of the raw materials and technologies needed for its production. 

Thus, it is dangerous for any investor to consider fake news in his analysis. An error of assessment, erroneous information, or a misunderstanding of the sector of activity, for example, could cause the failure of his investment, resulting in financial losses.

 

Fact-checking tools

Originally, fact-checking is a knowledge-based journalistic exercise in which we verify the authenticity of information by comparing it with established evidence. This method, which requires expertise, rigor, and time, is only marginally compatible with the structures and challenges of companies. 

Like the publication "A Survey of Fake News: Fundamental Theories, Detection Methods, and Opportunities", many studies have investigated an automated methodology to verify information with a different scale of performance.

Tech companies, which develop artificial intelligence, have a full role to play in this process to accompany the paradigm shift and meet three challenges: the speed of detection of fake news, the reliability of verdicts, and the accessibility of verdicts to the greatest number. 

The fight against disinformation would therefore be based on a triptych formed by training, how to apprehend information by generating analyses based on a contradictory approach, technological tools enabling the verification of information, and dissemination methods whose speed would approach that of disinformation networks. 

 

How can Buster.Ai protect financial companies from disinformation?

First and foremost, let's remember that Buster.Ai's mission is "to create the most advanced AI Products to simplify and accelerate information verification and reinform the minds that advance humankind."

To achieve this, Buster.Ai offers algorithms that can perform semantic searches, and extract facts, signals, and trends to verify any information in seconds. These algorithms, which constitute a powerful fact-checking tool, are based on a patented artificial intelligence that continuously enriches its model. To do this, they analyze millions of sources. The verdict delivered is enriched by the proposal of sources from news agencies, fact-checking, reports, scientific publications, or encyclopedias, selected and verified by professional journalists. The user thus obtains the reading keys to deepen and understand the subject.

This fake news detection tool allows financial players to sift through crucial information and validate or invalidate certain points. The solution is positioned as an indispensable tool for conducting business and making investment decisions. 

It should be noted that the Buster.Ai API offers client companies the possibility of being proactive to anticipate cases of misinformation that would affect the reputation of the company, its partners, or its interests. Finally, the chronological display allows the user to understand the dynamics of the dissemination of disinformation subject to adjust its communication accordingly.