You may remember that last year in one of these preambles I looked at the psychology of economics and the impact of business confidence measures. The key takeaway was that business confidence and economic forecasting is based on emotion and that it is contagious.
There was proof to that last week, instigated by Twitter. The authoritative AP news stream was hacked and a fake tweet about bombings at the White House was released. The effect was almost immediate: the Dow Jones lost a whole percent within minutes. Luckily for most investors, it almost as quickly regained the entire loss once the tweet was revealed as fake.
Perhaps the most curious part of this incident is that the drop was the result of a simulated psychology, not human psychology. Computer programs designed to identify online sentiment classed the twitter responses as negative, prompting their selling spree almost immediately. While the behaviour is consistent with human psychology, humans would probably have taken a little longer to respond, selling less before the truth was discovered and having a smaller effect on the market’s health.
In this age of high-speed change and digital decision making, the Andersen Report provides the tools for you to make solid, long-term decisions. Members can access this month’s report here >