When a stock market bubble is about to burst, financial experts start using all the same words to describe what’s going on, even if - especially if - those words are positive. Groupthink doesn’t get much more perilous than this.
That’s the finding of computer scientists at University College Dublin, who went through 18,000 articles by the Financial Times, New York Times, and the BBC to see what nouns and verbs financial analysts were using to describe the stock market. They found that, in the run-up to various market bubbles bursting, the experts all started using very similar language to describe what was going on, and these trends in word use correlate very closely with how the market actually performs.
Professor Mark Keane explains:
"By plotting the distributions of words used in financial articles published online between 2006 and 2010 into a computer model, we were able to identify what we call ‘verb convergence’ and ‘noun convergence — where the language used by financial journalists shows converging agreement. Our study shows that reporters converge on the same language — ‘stocks rose again’, ‘scaled new heights’, or ‘soared’ — as their commentaries became more uniformly positive in the lead up to the 2007 crash. They also appear to refer to a smaller-than-usual set of market events — presumably because of an increased fixation on a small number of rapidly rising stocks.
Read the original paper here via International Joint Conference on Artificial Intelligence. Image via.
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