This company is about to go bankrupt. Paul McCartney is dead. Arab-looking people are renting Ryder trucks en masse. Fluoride in tap water is making us sick. Israel sent AIDS-infected melons to Saudi Arabia. Katrina victims raped and shot at rescuers. A crazy student is going to shoot up our school tomorrow. George Bush and Condie Rice are having an affair. Barack Obama is Muslim.

Rumors are powerful -- and deadly, when they perpetuate stereotypes or spread panic. No matter how sophisticated or skeptical we think we are, we're all rumor consumers. Spreading speculative stories is an irresistible part of being human, says Nicholas DiFonzo, a psychology professor at the Rochester (N.Y.) Institute of Technology whose insights on hearsay made the New York Times Magazine's 2006 ideas issue.

In "The Watercooler Effect," he shows how we use rumors to connect with others -- or to shut them out -- and to ease uncertainty and anxiety. The stories we repeat and the audience we choose reflect and strengthen our social standing and networks. He also discusses how government and business can counter rumors: transparency and honesty.

Lest the subject seem esoteric or merely an entertainment, DiFonzo reminds us that Saddam Hussein methodically planted rumors that helped him retain power. And rumors that he harbored nuclear weapons triggered a war.

As rumors about the stock market and our economic fortunes proliferate, DiFonzo's book is especially timely.

And that's no rumor.