The CNBC Effect

According to Michael Morris, a professor at Columbia's Graduate School of Business, certain words used by the financial media to describe daily stock-market movements can subtly influence the way investors interpret the news. His research found that "agent" metaphors — verbs like leapt or climbed that imply purposeful actions — convey an expectation to the audience that today's trends will persist tomorrow. The opposite tends to be true when journalists employ "object" metaphors — words that don't imply the market is moving by its own volition, such as rolled or dropped — or no metaphors at all.

"This is one of the things we do as humans," says Morris, who will present his findings at the annual meeting of the Academy of Management next week. "We anthropomorphize things. It has consequences in the stock market because metaphors carry implications, in the sense that the event being described was purposeful, goal-oriented and therefore likely to continue."

It's this expectation of continuity in the stock market that's conveyed by journalists' word choices that can affect buy and sell decisions. A phrase like "The Nasdaq vaulted higher..." makes a bigger impression than "The Nasdaq fell..." While Morris doesn't think journalists make conscious choices to use agent metaphors especially for up markets and object metaphors (or no metaphors at all) for down markets, there's something about the way the human mind works that leads to this behavior — even on the part of ostensibly objective members of the media.

SmartMoney.com spoke with Morris about how subtle differences in word choice can affect the way people interpret news, and, ultimately, the way they invest.

SmartMoney.com: What were you and your colleagues trying to investigate in this study?

Michael Morris: This program of research came out of our interest in the way people in the stock-market commentary sector use anthropomorphic and "agentic" words. This is one of the things we do as humans — we anthropomorphize things. It has consequences in the stock market because metaphors carry implications, in the sense that the event being described was purposeful, goal-oriented and therefore likely to continue.

One study wanted to confirm the idea that ordinary investors are affected by how a price change is described to them, whether it's described in agentic terms or using physical-object metaphors or no metaphors whatsoever. In the stock-trading experiment in our laboratory, people who heard about an up day in agentic language thought it would continue. So that might lead someone like that to buy a stock. Same thing with a down day. An agentic description of a down day led them to believe that would continue.

SM: Can you explain the different categories of descriptive language?

MM: Purely nonmetaphorical language is words like decreased, increased, rose, fell. Object metaphors [are] skidded, rolled — things an object can do that don't imply that it's self-propelled and purposive. And the agentic words describe something with internal force, or internal volition, like soared, vaulted, leapt, climbed.

SM: What differences did you notice in the news about a positive movement in an index vs. a negative one?

MM: What's particularly interesting is that the choice of language is not random. We tend to use these agentic metaphors to describe an uptrend rather than a downtrend. That might lead people to take uptrends more seriously, and think downtrends wouldn't continue. We looked at a CNBC show called "Business Central," the transcripts of which are on its web site. We used a computer program that finds references to the movement of the Nasdaq, the S&P 500 index and the Dow, and we tabulated the proportion of metaphoric content. We found that when a given index had been up for the day it was more likely to be described with agentic metaphors, and when it was down for the day it was more likely to be described with nonagentic metaphors or object words, like "the Nasdaq rolled off a cliff today." When we put people in the role of commentators, they did the same thing. They launched into agentic language when describing an up day, and non-metaphorical language when describing a down day.

Our hypothesis comes from what some other researchers have shown, which is that people are responsive to trajectories. Trajectories going upward correspond to animate objects, as opposed to downtrends that correspond more to inanimate objects. This is potentially biasing people to think the trends continue. They're more likely to encode an up day as an action, to think about the market as something that's acting. When you see financial headlines, you see that the "Nasdaq climbed," "the Dow vaulted upward," or the "market crawled upward."

Certainly, some days downtrends are being described in agentic language, like the Nasdaq dove, or the Nasdaq searched for a bottom. It's just not as frequent. For the naive investor who's trying to make sense of the newspaper, the mental concepts that get triggered by agentic descriptions of uptrends may lead them to think that an uptrend is a meaningful signal for tomorrow, while the downtrend isn't a meaningful signal about tomorrow.