The effect of digital media on financial markets

Propelled by development of digital media, proliferation of information has obtained a significant impact on financial markets. Therefore, in order to be flourishing, firms need to pay attention to its representation in multiple digital media. For instance, in September 2004, Kryptonite announced a lock exchange plan soon after a negative video that showed how to pick a Kryptonite bike lock with a Bic pen went viral on the blogosphere. In such a developing environment, an important question arises: could digital media metrics (web blogs, consumer ratings and many others) become a leading indicator of financial securities, mainly shares? The answer on this question will affect behavior of senior executives, who maximize firms’ value, and investors’ decisions.

In their study, “Social Media and Firm Equity Value”, Xueming Luo et al. test the predictive power of two sources of social media: blogs and ratings. According to their initial hypothesis, information wandering around on social media sites affects firm’s value, which enables investors to forecast changes in the price of its shares. The authors state that because social media content diffusion is accelerated, the stock market responds faster to information transmitted through social media. More than that, platforms consisting of user-generated content excite the authors’ attention as they accurately record consumers’ feedback and recommendations which are self-revealed by them. Given social media account for a significant amount of users’ online time (as at 2010, a quarter), social media metrics could become good proxies of costumer sentiment. As authors state, the latter plays an important role in the evaluation of a firm’s market price.

To test their hypotheses, Luo, Zhang and Duan conducted a regression analysis based on data on some firms’ social media metrics (rating level, rating volume, the number of positive blogs and many others). This data represented nine firms over approximately 500 trading days. After running a regression model, a statistically significant relationship between rating level and firm return was found: a one-point increase in the former leaded to the three-percent increase in the latter. In a nutshell, the test’s results confirmed their hypotheses of the causal relationship between social media metrics and firm’s value.

I generally agree that social media facilitate information spread which makes news about the firm go viral and amplify investors’ gloom or joy. However, I don’t believe that consumer sentiment, which is the key variable in the discussed study, has something to do with the fundamental value of a firm. The latter is determined by a firm’s performance or, to be more precise, by its expected future profits. Therefore news which represents changes in a firm’s performance may have a long-term effect on its value while buzzing rumor only leads to short term deviations from its fair price.

To sum up, digital media, and in particular social media, affect the value of financial securities, like shares, by facilitating the diffusion of some information related to them. But it’s important to distinguish between changes in prices caused by hype and warranted changes based on relevant financial information. One way to do this may be allowing for the trade volumes in an analysis.

References

Luo, Xuemin, et al., “Social Media and Firm Equity Value”, Information Systems Research Vol. 24, No. 1, March 2013, pp. 146–163

Cognitive selection

For the time being, communication technologies, like social media, enhance the consumption and producing of information. In his paper, ‘The Dark Side of Information Proliferation’, Thomas Hills highlights that within information-rich environments, information is placed under forces of cognitive selection, which may produce negative outcomes, such as extremism or hysteria. To test Hills’ ideas on negative and belief-consistent selection of information, I decided to conduct research on how people choose textual articles and what sort of information they tend to learn from them.

According to Hills, we are prone to weight advantages over disadvantage. Therefore, negative information is more likely to be selected than balanced content. When we think about this fact, it seems sensible: negative information has more significance for survival. Indeed, you probably won’t doubt that for ancient people it was more important to know which berries are poisonous than how plants propagate. Despite the fact that in most modern societies, life is comfortable and safe, we are still prone to negative selection because it’s part of our evolutionary heritage.

Moreover, in the ocean of information within the internet, we find a sea which is similar to what we know and which confirms our existing beliefs. Hills explains belief-consistent selection by our propensity to defend the knowledge which make up our worldview and shape our identity. More than that, due to our biology, we understand and recall information in relation to causality structures that we already understand more efficiently.

To test Hills claims about these tendencies in information selection, I’ve conducted a small study. I’ve created a Google Form with several short textual articles. On the first page, participants should have read nine headings and opt for one of them. Respondents have been given four pairs of the same texts which differ from each other only in headings. While one article has got a negative heading, another one has been entitled in a more positive way. The ninth article’s heading has been made neutral. According to the first hypothesis, the majority of participants should have opted for articles with negative heading which would have confirmed negative selection tendency.

After reading, respondents should have answered on the question: “Which option does describe the meaning of this text best?” As you remember, the texts in pairs were absolutely the same and so were the offered options. Among four options, a half contained only negative information from the text while the rest consisted of positive ideas. All options had equal chances to be chosen because ideas were represented in controversial texts approximately in the same way. However, I expected to see the correlation between headings of articles (except for the neutral article) and answers. This would have supported the idea of belief-consistent selection.

The results confirmed both hypotheses. People opted for articles with negative headings more often. 25 participants (approximately 57 percent) chose negative headings while 15 people (approximately 34 per cent) read articles with positive ones. The rest was attracted by the neutral article. Also, there was a correlation between what participants expected to see in a text and what they interpreted as its main idea. For instance, the text devoted to privacy concerns about the use of Amazon Echo equally introduce both perspectives on the problem. But those who read “Amazon Echo could spy on users” decided that text criticized Echo while people who chose “Amazon Echo uses confidential information only with the knowledge of users and in their interests” thought that the article defended the gadget.

References

Thomas T. Hills , “The Dark Side of Information Proliferation”, Perspectives on Psychological Science 1 –8, 2018

What’s on the menu?

Significant changes that are going on in the modern world bother a lot of scientists and geeks. Tristan Harris, like other technophobes, is pessimistic about the influence of new digital technologies on our lives. To test his idea that by shaping a menu, tech designers can manipulate users, I decided to conduct my own simple research.

In the essay “How Technology Hijacks People’s Minds — from a Magician and Google’s Design Ethicist”, Harris puts a spotlight on a set of tools by dint of which tech companies control their clients. The author pays close attention to menus. Modern people encounter these interfaces all the time: when they swipe faces on Tinder, answer emails or search for a bar on Yelp. According to the author, we are vulnerable to menus’ influence as we don’t worry about what is left behind them. Hardly do we ponder a menu provider’s goals. Proceeding on these premises, Harris states that technology “hijacks the way we perceive our choices and replaces them with new ones“.

To my mind, it’s dubious that users deem a set of options provided by various apps, like Yelp or Tinder, as a complete set of available alternatives. Indeed, the use of Yelp doesn’t necessarily mean that we give up the opportunity to walk in a park with friends. It means that we want to hang out at a bar. In other words, we understand what is not included in menus and use only those apps that satisfy our current needs.

To support this thought, I created a Google form with one question: “What would you ask a genie for if you encountered him?” There were three given variants: two options were supposed to be popular (money and teleportation skill) while another one was less popular (the perpetual summer). Moreover, respondents could come up with their own answer. The poll consisted of one question because I didn’t want to let indolence distort the results of the experiment. Poll participants are likely to ponder questions and give a sincere answer if there are few of them.

According to my hypothesis, respondents should have offered a great number of their own answers which would have disproved people’s negligence toward options behind a menu. More than that, the dominated variant should have been opted for by a smaller number of people as they were supposed to choose options from the menu only when the latter aligned with their own opinion.

Orange, red and blue section correspond to the number of people who have chosen variants from the menu

The form was uploaded on a popular Russian social networking site Vkontakte. 70 random people, mostly students, gave their responses. The results approve my hypothesis: a significant number of respondents have come up with their original answers (39.7%). Many crucial themes, like family’s wellbeing, success and social issues, were touched in their responses. It demonstrates that participants have responsibly approached to the poll. Only few of the rest have opted for the unpopular variant (4.4%). Consequently, we may state that the poll participants have opted for the given variants consciously. Otherwise, they would choose variants randomly, and we wouldn’t see the correlation between the popularity of a variant and the number of responses.

Modern reading techniques

The way people read texts have been evolving since the very advent of writing: while Cesar’s contemporaries couldn’t read silently, modern people can process an impressive amount of information without any sounds. An influence of new technologies on our reading practices is touched in the Robert Clowes’ article “Screen reading and the creation of new cognitive ecologies”. In order to check whether his description of tendencies in reading corresponds to my personal experience, I decided to analyze my reading practices.

Reading is a powerful tool for acquiring new knowledge. Some scientists mentioned in the article claim that in order to gain real understanding of a subject, you should be immersed in a text. This type of reading is called deep-reading. It’s characterized by reflection, insight and inferential reasoning. As Clowes states, after digital technologies grew pervasive, a new type of reading, so-called hyper reading, developed in response to the abundance of available information (4).

In contrast to deep reading, the novel type of reading is non-linear and shallow. It includes skimming, scanning and text fragmenting (4). However, the author concedes that some ways in which people do reading may lie beyond the scope of deep/ shallow dichotomy. For instance, most academics don’t read a whole book when they make research, but we cannot label their way of reading lightweight.

Today, I woke up and checked my email via an internet browser on a laptop. Looking through the web page, I identified the most important messages and read them more attentively. To write answers to some of them, I had to visit some web sites and extract necessary information, which can be done in several clicks. Although the Internet gives you the opportunity to find whatever information you need, it also distracts you. For instance, when I hyper read checking the email, I always have to combat an overwhelming desire to watch some videos on YouTube or to chat.

Then, I read a prompt for a new writing assignment. I did it twice in order to understand it better. Close attention was paid to the deadline of the task and the limits on the number of words. In contrast to messages skimming, the reading of the prompt was linear and immersive. However, it would be ridiculous if I evaluated my deep reading ability by immersion in sequential description of the task.

The Clowes’ article, which makes up the ‘they say’ part of this post, fit my needs. Being aware of my vulnerability to external irritants, I protected myself from the Internet having shut off a Wi-Fi router. It turned out that I should blame my attention problems on propensity for idleness rather than on access to the global network: sitting on the kitchen, I often abandoned reading to make a cup of tea.

Then, I moved to the living room, far from food, and thereby motivated myself to read the article. I needed to extract only necessary information: the author’s view on the changes in reading practices. Therefore, at the outset, I scanned the text and sought the key words. Using Microsoft Edge, readers can search for a particular word, underline text and make notes. These tools were useful for me at the stage of hyper reading: when I tried to extract the material for the post. After I found an appropriate fragment, I immersed in the authors’ narration to get a handle on his ideas and not to distort them in the post. It worth mentioning, that the latter part of the reading process lasted for a longer period of time.

Thus, after my small analysis, I have learnt several things. Firstly, despite the fact that pervasive digital media have created an information-intense environment, they may not be guilty for our lack of attention. There are a lot of irritants beyond the scope of a digital world. Moreover, scientists’ concerns notwithstanding, the hyper reading may co- exist with the deep reading. For instance, I hyper read when I need to define important information and sort out a ton of useless data. But if I try to process a particular piece of information, I switch to deep reading.

Works cited

Clowes, Robert. “Screen reading and the creation of new cognitive ecologies”. 2017. Springer-Verlag London Ltd.

Do digital technologies steal childhood?

Maybe except for stubborn diehards, the majority of people, in particular kids, have plastic (adaptive) minds. As a neuroscientist, Susan Greenfield is concerned about the impact of intense changes in our environment which result from digitalization on an immature mind of a child. Although her claims about this influence made in the book Mind Change may be true for some kids, my personal experience is not at all consistent with her description.

First of all, the scientist puts a spotlight on the tendency for deliberate isolation from the real world in favor of a digital one (24). While some years ago, a bedroom was an equivalent to a lockup for guilty kids, nowadays it’s a place where children maintain connections with distant friends or surf the Internet often being alone. According to Greenfield, such a behavior may result in the loss of vital for social interaction abilities: empathy and communication skills.

Also, the scientist expresses a concern which is familiar to a sea of modern parents: sedentary lifestyle of their children (26). She touches on an important issue. Not only could constant immersion in the digital world affect kids’ minds, but also it’s likely to harm their health. However, the author concedes that the direction of causation may be reverse: due to their indolence, some kids indulge in sitting in front of a screen.

Moreover, Greenfield states that in front of a screen, kids receive produced content, which doesn’t require a lot of intellectual efforts. Therefore, the author deplores the contraction of the amount of time an average kid spends outside. She claims that role-playing games and communication with peers both promote socialization and develop children’s imagination. Indeed, stories and characters come directly from inside a kid’s head when he is performing as a cowboy or playing with toys. Without this crucial experience, according to Greenfield, children hardly can gain creativity and ability to analyze subjects from their own perspectives.

All mentioned concerns determine what Greenfield perceives as the most severe threat both for children and future generations. She states that “life in front of a computer screen is threatening to outcompete real life” (25). According to the scientist, digital technologies provide children with so many opportunities that people’s experience in the world behind screens can become independent of connections into real life.

The neuroscientist seemingly describes my childhood. However, as far as I remember, neither me nor my contemporaries had problems depicted in Mind Change. The digital world didn’t absorb us and it didn’t affect our mental and physical development.

Changes mentioned in her work had begun even before my birth. Ubiquitous technologies like TVs, phones and PCs pervaded our house too. Although I didn’t have a personal TV in my room, the “window to the outer world” was always open when no one used it. But I clearly remember that I preferred to play outside rather than sit in front of the TV. In small towns, like that where I was brought up, the environment encourage play in the open air. When all citizens live in two-storied houses fenced by lofty trees which outnumber the population of a town, they are likely to obtain the unity with nature.

After I reached the school age, I left this quiet and peaceful place because my parents wanted me to study at an advanced school. In those days, I began to intensely use the opportunities provided by social networking sites and telephony. Being far from home (I lived in my granny’s house in Cheboksary), I often chatted with distant friends, parents and other relatives.

Notwithstanding frequent usage of technologies, I spent a lot of time outdoors. Recalling those years, I marvel at the ingenuity of kids living in a stone jungle surrounded by roads and highways. We used to play tag and hide-and-seek running around high-rise buildings or played football with the makeshift gates on one of few fields.

When games ended and I came back home, social networking sites and collective games helped us to remain connected after parting. Even a TV show or a game which were watched or played by me on my own usually pervaded my conversations with classmates, thereby promoting my socialization and analytical skills.

Thus, my childhood didn’t fit the Greenfield’s description. Although I often used a laptop with access to the Internet and sometimes gawked at the screen of a TV, such activities didn’t affect my connection with reality. Conversely, opportunities provided by social networks and telephony enriched my life and augmented the real world. It’s true that we spent less time outside than we could have spent in a world without screens, but the difference was not as hazardous as Greenfield presents. Neither my socialization process, nor the acquisition of analytical skills was affected by the usage of gadgets. However, the fact that tendencies described in Mind change didn’t influence my childhod doesn’t mean the absence of these threats. The verification of Greenfield’s concerns requires rigorous research.

Works cited

Greenfield, Susan. Mind Change. New York: Random house, 2015

The impact of epistolary communication on social relations

In his article “Little Boxes, Glocalization, and Networked Individualism”, Barry Wellman describes how social structures have been evolving following the development of technologies. In particular, the scientist demonstrates how social relations could be influenced by pervasive communication technologies or a lack of them like in the society of “little boxes” characterized by tight connections within each “box” and weak interaction between them. The novel Poor Folk written by Fyodor Dostoevsky depicts the correspondence of the “little boxes” society’s representatives, and therefore provides us with the opportunity to estimate the impact of epistolary communication on their relations.

It’s not so difficult to get a handle on the “little boxes”: just imagine our modern society and then remove all significant inventions made for last two centuries. Mid-nineteenth-century St Petersburg depicted in the Dostoevsky’s novel could serve as an example of the society of “little boxes”. In those days, citizens were transported by cabs or walked. They exchanged information by word of mouth or via letters. Despite a developed postal organization in the city, the majority of people couldn’t afford to use it.

Partly, due to the costliness of the post’s services, the rank-and-file functionary Makar Devushkin moves into a new apartment. The hero needs to settle near the house of the humble seamstress Varvara Dobroselova to maintain epistolary connection with her. In addition to disclosure of the rich inner worlds of the heroes, their correspondence helps readers to evaluate what impact on the social relations epistolary communication has.

The Devushkin’s first letter may tell us a lot about this impact. The letter is replete with compliments (“my angel”, “my beloved one”) and thorough description of emotions (“How happy I was last night—how immeasurably, how impossibly happy!”). These details demonstrate how greatly the character appreciates his connection with Varvara. Hardly can the letter be lumped in with the modern messages where even some words are shortened.

While someone could explain the thoroughness of descriptions by appealing to Makar’s feelings, I tend to believe that the means of communication also has a significant contribution. Indeed, as Makar writes, he has to ask the familiar woman Teresa for delivering letters from Makar’s communal flat to Varvara’s house. Although Teresa is kind and reliable, Makar doesn’t want to take advantage of her goodness and sends letters quite rarely. Therefore, to my mind, he includes as much information as possible.

Another important characteristic of their communication is references to the past letters. Devushkin often mentions facts from received messages throughout his writing (“But how is our good Thedora? …You write that she is now living with you…”). Consequently, he observes the whole picture of Varvara’s life and tries to be its part rather than pointlessly consumes information. To my mind, when people make so many efforts to maintain connection and their messages sincerely and precisely reflect their emotions, letters become a genuine means of interaction.

The way of communication and therefore some aspects of social relations have drastically changed in our modern world of “networked individualism”. This form of social arrangements is characterized, in a nutshell, by unfettered interconnection between single individuals. First and foremost, the maintenance of relationships with any person doesn’t require so monumental efforts nowadays. That’s why, the majority of people email or phone so many individuals that the amount of information they receive and send is colossal. On the other hand, the possession of many connections causes the devaluation of each of them. Indeed, we are not able to pay a lot of attention to every interlocutor.

To sum up, the Dostoevsky’s novel demonstrates that communicating via letters, members of the society of “little boxes” maintained much tighter connections although their number was finite. It’s consistent with the Wellman’s theory according to which “little boxes” made up tight-knit groups. Although modern technologies allow us to create a large number of links, they are less strong than those within a “little box”.

References

Barry Wellman, “Little Boxes, Glocalization, and Networked Individualism”, Berlin, Heidelberg, 2001

Fyodor Dostoevsky, Poor Folk, Translator: C. J. Hogarth;