Fake news harms the economy

Research by Stefanie J. Huber ’10 (Economics Program) and co-authors

several hands hold mobile devices displaying an article with the title "Fake News" and a big share button.

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 findings are derived from two discussion papers involving our alumni community.

In the digital age of the internet and social media, misleading information, often referred to as fake news, has gained momentum since the beginning of the new millennium. Whether political or economic in nature, fake news spreads rapidly. BSE Economics alum Stefanie Huber, now Associate Professor at the University of Bonn, along with Professors Tiziana Assenza, Fabrice Collard, and Patrick Fève from the Toulouse School of Economics, have examined how fake news influences economic dynamics and business cycle fluctuations.

Higher unemployment, lower production

To measure the impact of fake news shocks on the economy, the team compiled a novel dataset, called the “Fake News Atlas” database. It incorporates news fact-checked by PolitiFact, a non-profit and nonpartisan fact-checking organization founded in 2007.  PolitiFact adheres to the principles of the International Fact-Checking Network.

Since the effects of fake news shocks cannot be directly measured, the research team used a proxy VAR model. This approach allows to determine the dynamic causal impact of “fake news shocks” – sudden surges of misleading information. The study analyzes monthly US data from January 2007 to December 2022, including the unemployment rate, industrial production, a business cycle factor summarizing key information about the business cycle, and the one-month-ahead macroeconomic uncertainty index.

Through our model, we demonstrated that technology-based fake news shocks have a significant impact on economic development,” Stefanie Huber explains. As a result, unemployment rises while industrial production falls. Furthermore, fake news shocks contribute significantly to business cycle fluctuations. They also influence consumers to cut their spending. This downturn negatively affects the labor market, leading to reduced working hours and a decrease in job vacancies.

Underlying mechanism

What mechanism is at play here? In Economics, we would say that fake news shocks act as aggregate uncertainty shocks. Technology-related fake news shocks sow seeds of uncertainty that reverberate through the economy. “One can perhaps imagine it like this,” says Huber: “When market participants see these fake news, even if they can identify them as fake, they don’t know if other market participants will fall for them. This creates uncertainty and hence, hampers investment.”

Figure 1 shows a specific example of a fact-checked news item, as shown on PolitiFact website. A conspiracy theory that claims 5G towers are used to brainwash people has surfaced on social media. In a Facebook post sharing a TikTok video, a narrator refers to U.S. patent No. 5356368A and claims it’s proof that 5G towers are used to induce thoughts in people’s consciousness. Such fake news is liked, commented on, and shared by thousands and sometimes millions of media users. Some of the fake news is fact-checked and subsequently marked as “fake.” However, even then, the commentaries often continue to debate the potential “fakeness.”

A Facebook post claiming that 5G towers are used for brainwashing receivees a "pants on fire" rating from Politifact's Truth-o-meter"
Figure 1: Example of a fact-checked news item

For the readership of the BSE community, this particular fake news might sound like absolutely irrelevant noise. And yes, it is noise but not irrelevant—it creates uncertainty. Consider companies producing 5G towers or 5G-technology-based products, their investors, and shareholders. Observing this news creates uncertainty for all of them, even if they can identify it as fake. They do not know how many potential customers or shareholders might be misled by this fake news, potentially inducing a decrease in demand for 5G products and services in the future. Hence, fake news shocks can mimic the disruptive effects of classical aggregate uncertainty shocks.

People overestimate ability to recognize fake news

In another discussion paper, Stefanie Huber, along with Tiziana Assenza and Alberto Cardaci, investigated whether citizens are able to recognize fake news and are willing to pay to protect themselves from the harms of fake news.

In a survey-experiment with a r epresentative sample of 2,413 individuals over 18 years of age, covering various ages, genders, education levels, ethnicities, marital statuses, household sizes, residential regions, and party affiliations, participants from the US population evaluated the accuracy of a series of fact-checked headlines. These statements covered a heterogeneous spectrum of news topics and channels. The approach focused on citizens’ ability to discern the accuracy of information based on the content of the news.

Huber and her co-authors find that the vast majority of respondents have great confidence in their ability to assess the accuracy of news; 82.64% of participants indicate having a “good” or “very good” ability to identify news or information that distorts reality or is even false. “Interestingly, only 37.61% of our respondents believe that the average citizen is capable of distinguishing between correct and fake news,” says Huber.

The key insight: Participants significantly overestimated their own ability to distinguish between correct and fake news.

A silver lining: 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 are crucial for maintaining economic and political stability as well as informed decisions for each individual. “Our research shows how simple awareness campaigns can make a significant difference in the fight against misinformation,” says Huber.

Both studies were funded by the German Research Foundation (DFG) and the French National Research Agency (ANR).


Fabrice Collard gave an interview to CEPR host Tim Phillips about the team’s research. Listen here: https://cepr.org/multimedia/how-fake-news-shapes-business-cycle

Publications and non-technical summaries:

  1. Assenza, T., Collard, F., Fève, P. & Huber, S. (2024): From Buzz to Bust: How Fake News Shapes the Business Cycle. https://cepr.org/publications/dp18912

Non-technical summary: VoxEU column

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

Non-technical summary: VoxEU column

Connect with the authors

  • Stefanie J. Huber ’10 (Economics). Associate Professor at the University of Bonn and faculty member of the ECONtribute Cluster of Excellence, Germany. 
  • Tiziana Assenza. Associate Professor at the Toulouse School of Economics. 
  • Alberto Cardaci. Serves as Market Insights Senior Manager in the corporate sector. Previously, he was Assistant Professor at the Chair of Macroeconomics and Finance, Goethe University Frankfurt
  • Fabrice Collard. CNRS Senior Researcher at the Toulouse School of Economics and a Research Fellow at CEPR. 
  • Patrick Fève. Professor of Economics at the Toulouse School of Economics.

Author info is current as of June 2024.

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