Story-telling animals

Suppose you are invested in the stock of company A. Then, you hear that an analyst has increased the price target for the company. A little later, you find out that this was false information, and the analyst raised the price target for another company, B. How much does that change your view of company A?

Let’s add a twist. Again, you hear an analyst has raised the price target, but this time you also get an explanation that goes something like this:

“An analyst thinks the company is good and said the following about the company: ‘My evaluation of this company is positive. What sets this company apart is the exceptional calibre of its leadership team. The executives bring a rare combination of vision and operational discipline, consistently making decisions that prioritise long-term value over short-term gains. Their track record of navigating challenging environments with composure and clarity inspires confidence across the organisation. A strong culture flows from the top, attracting and retaining talented people at every level. When leadership is this capable and aligned, the entire enterprise benefits. This is a management team that earns trust, and in my assessment, that trust is well placed.’”

Again, a little later, you find out this comment was about company B, not company A. How much does that change your view of company A?

Obviously, an analyst talking about company B should not change your view on company A, but why would I write about an experiment that tried this if that was the result? Instead, the results are shown in the charts below.

What these charts show is that if investors are confronted only with the information that an analyst has increased the price target and that information later turned out to be wrong, this misinformation did not change their views of the stock. However, if this misinformation was spread with a short story, investors viewed company A markedly more optimistically, even after they were informed that the analyst’s opinion had nothing to do with company A.

Change in perception of stock after being informed about a false comment

What this experiment shows is that humans are storytelling animals. We do not remember numbers very well, and if we are told that these numbers are not relevant, we gladly ignore them. But when we hear a story about a company, we have a hard time forgetting about this story, even if we are told this story is not true. The afterglow of misinformation taints our assessment of reality, even if we are told and convinced that the original story was false information.

This is the problem with misinformation on social media. The stories sound true, and even if you present convincing evidence that the story is false – yes, even if the person you show the evidence admits the story is false – this person will still believe the false story to some extent. Once a convincing false story has been planted, debunking it is not going to erase the effect it has on people. The damage is done the moment people read misinformation, and it cannot fully be reversed, it seems.