On the morning of 22 January 2013, a story started to develop on Twitter about the unexpected resignation of Deutsche Bundesbank's CEO. In a matter of minutes, the information had been exposed 256,634 times, and by 10.20 the euro had dropped 0.55 % in value. But it was all based on a false rumour posted on an anonymous blog – the market had been hit by a so-called 'infostorm'.
"Although a decimal movement like 0.55 per cent may seem trivial, it can have a profound effect on the currency market. Fortunately, Deutsche Bundesbank promptly denied the rumour, and the euro recovered. But the point about the rumour is that it was spread by a so-called rational algorithm for trading highlighting this particular information and by otherwise rational people who – instead of checking the validity of the information themselves – just imitated a powerful public signal by clicking the retweet button," says Professor Vincent F. Hendricks of University of Copenhagen.
Professor Hendricks and fellow researcher Pelle G. Hansen of Roskilde University, who have just published the book Infostorms, thus see this example as representative of the irrational group behaviour that is encouraged by information technology.
"With the advent of modern information technology, we more often than not base decisions on aggregated public signals such as likes, upvotes or retweets on social media platforms like Facebook and Twitter rather than taking the time to reflect and deliberate ourselves, with possibly severe consequences for democracy."
Social proof in cyberspace
Professor Hendricks and Pelle G. Hansen acknowledge that irrational group behaviour has always existed and that we are social beings who tend to gauge other people's opinions and actions. But modern technology has dramatically changed the speed and potential proportions of this social behaviour.
"Not only have social media and information technology increased the speed with which public signals are being circulated, they also do so on a much larger scale. And social media are specifically designed to encourage and promote our propensity for social proof because we can see how many people have liked or retweeted a story or piece of information," Professor Hendricks points out.
Social proof is the psychological phenomenon where people assume that surrounding people possess more knowledge about a situation than they do themselves – and therefore replicate the actions of the people before them.
"As we can see from our experiment on the pedestrian street in Copenhagen, a strong public signal from one agent can be enough to make the following agents ignore their own impulses to help a person in distress. Just imagine the proportions these kinds of social behaviours can take in an online context where you just need to click a button to like, upvote or retweet."
Read more on infostorms.com
Professor Vincent F. Hendricks
University of Copenhagen
Phone: + 45 40 16 80 63
Press officer Carsten Munk Hansen
Faculty of Humanities
Phone: + 45 28 75 80 23