In recent weeks the BBC’s business editor Robert Peston has come in for criticism about his role in breaking stories of banks in trouble (see for example these stories in the Daily Mail and Guardian).

Peston was the first to break the story of Northern Rock’s shortage of cash. The bank had enough assets to cover its obligations, but the credit crunch was making it hard for them to manage day to day operations. Peston’s story was quickly picked up by other news media. In the days following, queues of customers wanting to withdraw their savings from Northern Rock became so large at times that police had to manage crowd control. The bank’s operational difficulties, on which Peston had reported, quickly turned into a crisis of epic proportions. 

In normal times banks can safely accept savings deposits on terms which allow rapid withdrawal, then lend that money longer term. Deposits and withdrawals tend to average out and temporary imbalances can be covered by borrowing from other banks. But if unusually large numbers of depositors want their money at once, the cash is just not there. The system works because we trust it. Our money is safe so long as enough of us believe it to be. The breaking story about Northern Rock’s difficulties did not just reflect events it played a substantial role in bringing them about.  This pattern has become familiar as the current financial crisis has unfolded; news has not just followed financial events it has often amplified them.         

Robert Peston.
[image by SouthbankSteve, some rights reserved]

Of course the title of this article is mostly a rhetorical flourish. It would be unfair and untrue to accuse Robert Peston of single-handedly causing a recession. However, it is very much the case that media stories on the current turmoil are not just reflecting events they are also creating them.

Two ideas from social psychology and sociology can be helpful in understanding what is going on here: social amplification and performativity.

Social amplification of risk is the process though which public perceptions of risks can be produced and magnified as a consequence of the ways in which hazards come to public attention. A key issue in social amplification is the interest key parties have in the story. For example, media outlets have an interest in generating high circulation or viewing figures and ‘scare stories’ sell. This media focus on generating headlines can thus be a key factor in amplifying risk perceptions. Indeed the Daily Mail's outrage at the influence of Robert Peston might be seen as a little hypocritical given that paper's role in amplifying risk perceptions of other kinds, not least in relation to health.

If I drop a rock, it will fall to the ground (or perhaps on my toe) whether I believe in gravity or not. Gravity is independent of my belief in it. But many ‘facts’ I believe in are social facts and are true only so long as enough people believe in them; the value of money for example. What you believe does not just reflect our social world it helps create it. Performative statements or beliefs are those which help bring about the conditions they describe.

What you believe does not just reflect our social world it helps create it

The beliefs we subscribe to about banks are performative. By trusting that banks are safe places to keep our money we help bring about the stability which makes this true. By trusting each other with funds, banks ensure the stable operation of financial systems which in turn helps make that trust justified. Equally though, when we withdraw trust we help bring about conditions in which trust would be ill advised.

What we all think and feel about our financial security will have important consequences over the next few months. If we mostly fear the future, stop spending, withdraw our savings from banks, this will be part of the process which makes our fears true. Likewise as businesses take a view on the future and take decisions about investment and disinvestment, new hiring and layoffs these decisions will have a part to play in bringing about the future market conditions which that view is based on.

The media have an important role to play creating this future; they are not just disinterested bystanders. Whether they like it or not, journalists are not just reporting a financial crisis, they are performing it.

For a detailed account of social amplification at work in relation to a wide range of public risks see here. [Please note this link is to a 2.63 MB pdf document which may take longer to download with some internet connections] 

A recent book examines the role of performativity in economies and financial markets: Do Economists Make Markets? By Donald A. MacKenzie, Fabian Muniesa and Lucia Siu published by Princeton University Press.

About the author

Mark Fenton-O'Creevy is Professor of Organisational Behaviour at the OU Business School. His research includes investigations into the performance of traders in financial markets, and the problems that occur when management practices are transferred from one country to another.

He is also a National Teaching Fellow, and Principal of the Centre for Practice-Based Professional Learning.

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