When a story is told from person to person, especially if it is gossip or scandal, it inevitably gets distorted and exaggerated. This process is called Chinese whispers.
Chinese Whispers is also a name for a game played around the world, in which one person whispers a message to another, which is passed through a line of people until the last player announces the message to the entire group.
Errors typically accumulate when the story is repeated, so the statement announced by the last player differs significantly, and often amusingly, from the one uttered by the first.
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