Fake News Harms the Economy


A professor from the ECONtribute Cluster of Excellence at the University of Bonn is studying the influence of fake news stories and how they are being dealt with

Fake news significantly impacts economic dynamics, leading to higher unemployment and lower production. Additionally, people tend to overestimate their ability to distinguish between accurate and false information. However, once they are made aware of this (through experience), their willingness to pay to protect themselves from fake news increases. These are some of the findings from two discussion papers produced by the ECONtribute Cluster of Excellence at the University of Bonn.

The dissemination of misleading information—often termed “fake news”—has ballooned since the early 2000s with the rise of the Internet and social media. Whether it is about politics, business or the economy, it spreads fast. Professor Stefanie Huber, a member of the ECONtribute Cluster of Excellence at the Universities of Bonn and Cologne, together with Professor Tiziana Assenza, Professor Fabrice Collard and Professor Patrick Fève from the Toulouse School of Economics have now investigated how fake news influences economic dynamics and business cycle fluctuations.

Higher unemployment, lower output

To be able to assess the impact of fake news on the economy, the team used news stories that had previously been fact-checked by the PolitiFact platform and that Assenza and Huber had compiled in the “Fake News Atlas” database for their publication entitled “From Buzz to Bust: How Fake News Shapes the Business Cycle.” Founded in 2007, PolitiFact is a nonprofit fact-checking organization that adheres to the principles of the International Fact-Checking Network.

Since the effects of “fake news shocks”—sudden increases in the proliferation of misleading information—cannot be measured directly, the team of researchers used a proxy vector-autoregressive (VAR) model, which allows to determine the dynamic causal impact. In their study, the team analyzed monthly data from the US for the period from January 2007 to December 2022, taking into account the unemployment rate, industrial production, a business cyclical factor (which aggregates the most important information about the economic cycle), and the one-month-ahead macroeconomic uncertainty index.

“Our model allowed us to demonstrate that tech-based fake news shocks have a significant impact on what happens to the economy,” Professor Stefanie Huber explains. “This pushes unemployment up and industrial production down.” In addition, fake news shocks contribute significantly to business cycle fluctuations. “They also lead consumers to spend less,” Huber continues. This downturn negatively affects the labor market, leading to reduced working hours and a decrease in job vacancies.

So what is going on in the background? An economist would say that fake news shocks act like aggregate uncertainty shocks. Fake news shocks from the world of technology sow uncertainty, which spreads through the entire economy. “It happens a bit like this,” says Huber: “When market players see this fake news, even if they themselves know it’s fake, they still can’t tell whether other people will be duped by it. This creates uncertainty and hence, hampers investment.”

Ability to spot fake news overestimated

In another discussion paper, “Fake News: Susceptibility, Awareness and Solutions,” Professor Huber collaborated with Professor Tiziana Assenza from the Toulouse School of Economics and Alberto Cardaci, a market insights senior manager in the corporate sector, to investigate whether members of the general public are able to recognize fake news and are prepared to pay for measures to protect them against the harmful effects of the phenomenon.

A survey-based experiment asked a representative sample of 2,413 over-18s of various ages, genders, levels of education, ethnicities, marital statuses, household sizes and political leanings and from different parts of the US to assess the correctness of a series of headlines and subheadlines with short synopses of news items. These statements covered a diverse range of news topics and channels. The approach taken focuses on people’s ability to identify whether information is true based on the content of a particular news story.

The vast majority of those surveyed were very confident in their ability to tell how accurate the news is, with 82.64 percent of test subjects saying that they were “good” or “very good” at identifying news or information that distorts reality or is even completely false. “Interestingly, only 37.61 percent of our respondents believe that the average citizen is capable of distinguishing between correct and fake news,” Stefanie Huber reveals.

The team’s main finding was that the test subjects significantly overestimated their own ability to tell the difference between news stories that are true and those that are false. There is hope, however: Once participants realized (through experience!) that they were more susceptible to falling for fake news than they thought, their willingness to pay for protective measures such as fact-checking services significantly increased.

Understanding and combating fake news is vital for maintaining political and economic stability and for enabling every individual to make informed decisions. “Our research shows how simple awareness-raising campaigns can make a major difference in the fight against misinformation,” Professor Stefanie Huber says.

The Toulouse School of Economics also contributed to the study entitled “From Buzz to Bust: How Fake News Shapes the Business Cycle” alongside the University of Bonn. The other study, “Fake News: Susceptibility, Awareness and Solutions,” involved the University of Bonn, the Toulouse School of Economics and Goethe University Frankfurt. The two studies were funded by the German Research Foundation (DFG) and France’s Agence nationale de la recherche (ANR).

Assenza, T., Collard, F., Fève, P. & Huber, S. (2024): “From Buzz to Bust: How Fake News Shapes the Business Cycle.” https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_287_2024.pdf

Assenza, T., Cardaci, A. & Huber, S. (2024): “Fake News: Susceptibility, Awareness and Solutions.” https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_290_2024.pdf


Prof. Stefanie J. Huber

Institut für Finanzmarktökonomie und Statistik

M shuber@uni-bonn.de