The Value of Investors Being in a Deliberative Mindset When Reading News Later Revealed to be Fake

Abstract

Investors face a difficult challenge in determining whether news they read is true or fake, and hence may inadvertently rely on fake news when making investment decisions. Compounding these concerns, psychology theory suggests that even if investors later learn that previously read news is fake, they will continue unintentionally relying on the news (i.e., a “continued influence”). We examine if prompting investors to be in a deliberative mindset reduces their reliance on news after they learn that it is fake without affecting their reliance on news later revealed to be true. Consistent with theory, investors adjust their valuation assessments when news is later revealed to be fake, and this adjustment is magnified for investors in a deliberative mindset. Importantly, a deliberative mindset does not cause investors to discount news later revealed to be true, which would otherwise introduce an unintended cost unique to our capital market setting.

Keywords: fake news; information intermediaries; deliberative mindset; continued influence effect; investor judgments

JEL Classification: G11, M40, M41, C91, D83