Newspapers, other media lead entrepreneurs astray

August 27th, 2009 - 2:30 pm ICT by ANI  

Washington, Aug 27 (ANI): Entrepreneurs should remain wary of what they read in newspapers and other written sources, for they might lead them off track, according to University of California researchers.

Dr. Susan Glover said that public information from both informal and written sources, like newspapers, lead entrepreneurs astray.

In a study Glover took as an example how newspaper propaganda shaped the ore foraging strategies of the late nineteenth century Colorado silver prospectors.

She said that it is still not clear why individuals would allow questionable information from the media to dictate their economic strategies.

Still, she said that it was not uncommon for investors to be overenthusiastic during mass economic events, including the boom and the recent economic crisis.

She used the Colorado silver rush as a case study to investigate the role of the media and public information in shaping economic strategies, by comparing actual and optimal foraging behaviors (known as central place foraging, or CPF, behaviours) - in this case, of silver prospectors in Gothic, Colorado.

Central Place Foraging (CPF) models are designed to investigate optimal foraging strategies of individuals.

The data was gathered from the newspapers of the time, since the information in them is a “fossilized” version of what the public would have known from more informal sources, such as saloons.

She found that the information in the local newspapers exaggerated ore concentrations and led prospectors to underestimate the actual risk and investment of time and energy they were taking.

As the “payoff” was not worth the risk, (part of which was the distance from the town to the mines - not CPF behavior) prospectors ended up over-risking their investment.

The case showed that while the media can exploit the public by appearing to supply accurate information, the media themselves are being misled.

The study also teaches that in an environment where decisions are based on information provided (and presumably manipulated) by others, risk management is practically impossible and has a high potential for failure.

A very extreme case of this is the recent global financial crisis - individuals were underestimating their economic risk (subprime mortgages) based on what media and economic specialists were reporting.

And based on the CPF model, they wandered very far away from their home base with the false hope of a bigger payoff or a better life.

The study was published online in Springer’s journal Human Ecology. (ANI)

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