Measuring the Impact of Cognitive Warfare on Exchange Market Using Herding Index

Cognitive warfare, in which, using human’s brain cognitive biases, enemy is intending to disturb people’s cognitive abilities, is one type of psychological warfare. In this research, gathering questionnaire, we found that the most important cognitive error used in cognitive warfare in exchange market is Herding; in this line, we try to define an index to measure cognitive warfare intensity in and its impact on exchange market. Using the results of estimations, we predicted how exchange rate will differ.Our results shows that if, taking advantage of real exchange rate index, we control for the inflation rate in Iran and its trade partner and major countries in world trade and also control for monetary policy shocks, herding index, which is used as a proxy for cognitive warfare, could account for almost 50 percent of changes in USD exchange rate. In 45 percent of months the prediction from exchange rate babble by cognitive warfare intensity in previous month have less than one standard deviation error. Moreover, the results of prediction of exchange rate have in more than a half on months have less than 5 percent error. These results are fruitful for preparing against psychological attacks in exchange market, and anti-psychological warfare operations