19/08/2013 11:48 BST | Updated 18/10/2013 06:12 BST

Do We Want to Live in a World Where a Tweet Can Crash Markets or Decide Elections?

We find that Twitter is not a destructive force where false rumours ran amok. As I argued in a previous post, we are living an information revolution, which is always disruptive at first, and we are now slowly learning the right strategies for evaluating the flood of information coming through these new powerful tools like Twitter.

Here are two disturbing stories from the brave new world of social media:

The first one is about the 2011 Irish presidential election campaign, with a televised debate between the candidates just two days before polling day. There are two front runners, but during the televised debate a fake Twitter account, set up by an angry voter in the name of a third candidate, sends out a fake allegation related to one of the leading candidates. RTE, the Irish broadcaster running the show reports this fake tweet as real in live debate and forces the leading candidate to defend himself. He messes up and loses the election.

The second story is about the price of oil. Again, it starts with the creation of a fake account, this time in the name of the Russian Interior Minister, Vladimir Kolokoltsev. In August 2012, this fake account announced the death of Bashar al-Assad. At first it fooled a lot of people, even serious financial commentators, and the news moved the price of crude oil.

These stories beg the question whether we want to live in a world where a fake tweet can crash markets or decide elections. Well, I don't and I guess most people would not.

However, digging a bit deeper into the stories above, we find that Twitter is not a destructive force where false rumours ran amok. As I argued in a previous post, we are living an information revolution, which is always disruptive at first, and we are now slowly learning the right strategies for evaluating the flood of information coming through these new powerful tools like Twitter.

Don't be a muppet

With hindsight it's easy to see how a few simple precautions could have avoided being fooled in both cases.

In the Irish story, had RTE applied those very basic journalistic best practices that they normally use outside social media (e.g. verifying information, not accepting one source, checking the source's credibility), they would have quickly found out that it was a fake Twitter account. (For those willing to read up on the story, here is the Irish Broadcasting Authority ruling.)

The case of the fake Russian Interior Ministry account is more complex, but there are important caveats in this case, as well. The account, which might have been set up by an Italian journalist, has used a classic trick, mixing in the Twitter handle the capital "I" and the lower case "l", which look confusingly similar. (The same trick has been played a few months earlier, when creating a fake account of the new US ambassador to Russia, Michael McFaul, which caused quite a stir in Russia.)

The Russians quickly issued a statement denying the validity of the account and though the price of oil moved by $1, the market quickly corrected and the total losses were probably negligible. (Also, if any professional trader moves on the basis of one unverified source of information, they should only blame themselves.)

Social media news gathering is getting "boring"

As social media becomes a regular source of business and political information, best practices of verifying information, aimed at avoiding the above scenarios, are becoming established.

The number of accounts verified by Twitter is already above 54,000, making it easier to find reliable information. (If an account is verified than Twitter guarantees it's authenticity.)

Also, people slowly learn that a simple cross-check can often avoid being taken in: if the official Website of a ministry/candidate/etc doesn't refer to the actual Twitter account, then there's good reason to doubt the account's authenticity. (Doing this in the above cases, would have immediately exposed the fake accounts.)

These best practices of vetting social media information now allow many foreign services and news providers to routinely monitor very fluid and complex situations like Syria or Egypt through social media. (I hope to write about this in detail in an upcoming post.)

What about mistakes and hacked accounts?

As we have flagged up with @hajduspox already in 2011, a premature and quickly deleted tweet by Herman van Rompuy announcing a deal during an EU Summit has probably moved the euro exchange rate. The account was not hacked and the agreement was reached soon afterwards along the lines of the premature tweet. No harm done, but it was an early indicator of the risks Twitter poses for the markets.

This market risk duly materialized with the much discussed hacking of the AP account, most likely by the Syrian Electronic Army, which has visibly disrupted markets. (The hacking of the Financial Times account soon afterwards by the same Syrian Electronic Army highlighted possible gaps in Twitter's security.) Though the AP hacking was spectacular, since it involved a real market-influencer account hacked, as this chart shows, the markets have recovered in a matter of minutes.

The 24-minutes news cycle is here

The Reformed Broker pointed out that the crash proves a worrying tendency in the speed of market trading and interconnectedness, where false information can send shockwaves through the world.

The real issue is not the speed of social media, but that each industry, whether it's the markets or governments or news, has to develop its own best practices regarding the speed at which it wants to act on that new information.

A recent survey shows that traders and investors are acutely aware of the lack of reliability of breaking news on social media, still most are using it or planning to use it. The US Securities and Exchange Commission has recently approved listed companies using Twitter for official announcements. I am watching with interest how trading on social media information develops.

News outlets are also learning to cross-check information on social media and there are even companies who make a living out of helping journalists find and verify information on social media (Storyful is a great example.)

And finally, consumers and readers are developing their own procedures on dealing with breaking news. I spend considerable amount of time on social media. But as an interested citizen, my favourite strategy is to stay away from the news when they are breaking and wait until the dust settles to read the facts. This saves me time and keeps me better informed. Here is a funny piece to help you get started.