Risky Business: How Fake News Affects the Bottom Line

Risky business: how fake news affects the bottom line

Social networking app Houseparty – now defunct – saw a surge in downloads in the UK at the start of the COVID-19 lockdown in 2020. However, rumours surfaced claiming that the app led to users’ other accounts, like Spotify, being hacked, with some individuals posting screenshots on Twitter of being locked out of these accounts. The situation snowballed, with the tweets leading to calls to delete the app, which then led to claims that users were being prevented from removing it. Houseparty denied the allegations, offering a reward of $1 million for evidence of a smear campaign.

The alleged fake news, reported in mainstream media as well as other channels, caused substantial problems for the app, including but not limited to a loss of consumer trust, a dip in brand reputation, and financial repercussions for its owner.

Fake news has been accused of many things, from the dissemination of conspiracy theories and distrust in the media, to being a threat to democracy . It is also clear, as in the case of the Houseparty scenario, that it can have a negative impact on businesses. But how does it work?

How does fake news work?

According to Dr. Simone Hespers from Friedrich-Alexander-Universität Erlangen-Nürnberg, “Fake news often deals with allegedly sensational topics and frequently stirs up negative emotions such as anger, annoyance, disappointment or fear. Other media are quick to jump on the bandwagon to increase their own coverage. Negative emotions trigger a powerful response, in other words news which incites reactions such as these remains in our memory and we are much more likely to share it with others.”

The Houseparty scenario ticks all the boxes: a sensational claim (that the app locks users out of some of their other accounts); negative emotions (from users worried about convenience and data privacy); and media articles amplifying the claims (including in popular press and on social media).

But why might individuals believe in fake news? One study of the psychology that underpins the phenomenon, conducted by the University of Regina and Massachusetts Institute of Technology (MIT), finds that there are several influencing factors. These include political motivations, the inability to differentiate between truth and falsehood, and the human tendency towards heuristics (or mental shortcuts) when judging news headlines.

The risk of misinformation to businesses

The psychological factors amplify when we consider that fake news is but one type of misinformation. Misinformation covers both disinformation (which includes fake news), where there is an intent to deceive, as well as the uninformed misrepresentation of facts. In a global survey of 600 business leaders conducted by iResearch Services, 94% agreed that misinformation poses a problem to businesses. Despite this, only 37% were ‘very prepared’ to face any of the adverse effects that might stem from it.

The gap between businesses’ acknowledgement of misinformation and their current ability to deal with it is rife with risk – to brand reputation, to regulatory and financial implications of fraud, and, ultimately, to the bottom line. And there are many ways in which misinformation can pose risks to businesses.

“Unfounded rumours, such as in the case of Houseparty, are just one example, the tip of the iceberg,” says Yogesh Shah, CEO of iResearch Services. “It is imperative that businesses both recognise the risks that they face in the face of misinformation – particularly on the bottom line – and take the necessary steps to protect themselves against them.”

Download the iResearch Services misinformation report  to find out more about how fake news fits into the misinformation network, the risks that this poses to businesses, and how to mitigate them.