Short and Synthetically Distort: Investor Reactions to Deepfake Financial News

Recent advances in artificial intelligence have led to new forms of misinformation, including highly realistic “deepfake” synthetic media. We conduct three experiments to investigate how and why retail investors react to deepfake financial news. Results from the first two experiments provide evidence that investors use a “realism heuristic,” responding more intensely to audio and video deepfakes as their perceptual realism increases. In the third experiment, we introduce an intervention to prompt analytical thinking, varying whether participants make analytical judgments about credibility or intuitive investment judgments. When making intuitive investment judgments, investors are strongly influenced by both more and less realistic deepfakes. When making analytical credibility judgments, investors are able to discern the non-credibility of less realistic deepfakes but struggle with more realistic deepfakes. Thus, while analytical thinking can reduce the impact of less realistic deepfakes, highly realistic deepfakes are able to overcome this analytical scrutiny. Our results suggest that deepfake financial news poses novel threats to investors.