Maria Hartwig, PhD &
Jason A. Voss, CFA
How can you tell truth from lies as an investment professional? Success for experienced fundamental investors frequently relies on critical conversations with the management of businesses whose securities you purchase. Even in private wealth management, success requires that you receive honest answers to important personal questions from your clients, such as whether they are risk averse or risk takers. CFA Institute worked with criminal justice professionals for more than five years to research and create the tools necessary for investment professionals to better discern truth from lies from those you rely on. Hint: Lie detection does not require a knowledge of body language cues—this is a pan-cultural myth not verified by science. Lie Detection Guide: Theory and Practice for Investment Professionals explains what techniques work and how you can apply those every day.
Jason A. Voss, CFA,
Laure Brimbal, &
D. Brian Wallace
In the first empirical study on the topic, the authors examined the ability of investment professionals to distinguish between truthful and deceptive statements. A random sample of 154 investment professionals made judgments about a series of truthful and deceptive statements, some of which
involved financial fraud. Investment professionals’ lie detection accuracy was poor; participants performed no better than would be expected by chance. Accuracy in identifying lies about financial fraud was especially poor. Further, participants displayed poor metacognitive realism when assessing their own performance. The theoretical and practical implications for lie detection in the
financial industry are discussed.
Jason A. Voss, CFA, &
D. Brian Wallace
Research suggests that interpersonal deception is a common phenomenon in many settings. However, to date no research has examined lying and lie detection in the financial industry. This paper presents an empirical examination of investment professionals’ beliefs about deception. We obtained survey data from 607 CFA Institute charter holders across the world. Three aspects of deception were included in the survey. First, respondents’ beliefs about the behavioral characteristics of lying were examined. Second, perceptions of the prevalence of lies in professional and everyday life were mapped. Third, respondents were asked to estimate their ability to distinguish between lies and truths. The results showed that respondents subscribed to common misconceptions about deceptive behavior, in particular the beliefs that liars are gaze aversive and fidgety. Respondents believed that lying occurs on a daily basis, and that their accuracy in detecting lies exceeds 65%. Previous research suggests that this estimate may be overconfident. Implications of these results and directions for future research on deception in the financial industry are discussed.
James W. Pennebaker
In The Secret Life of Pronouns, social psychologist and language expert James W. Pennebaker uses his groundbreaking research in computational linguistics-in essence, counting the frequency of words we use-to show that our language carries secrets about our feelings, our self-concept, and our social intelligence. Our most forgettable words, such as pronouns and prepositions, can be the most revealing: their patterns are as distinctive as fingerprints.
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Award-winning social scientist and Harvard Ph.D. Bella DePaulo has been studying the psychology of deceiving and detecting deceit for decades. “The Hows and Whys of Lies” provides brief and accessible answers to some of the most fundamental questions about lying. For example:
Pars Anders Granhag,
Aldert Vrij &
Detecting Deception offers a state-of-the-art guide to the detection of deception with a focus on the ways in which new cognitive psychology-based approaches can improve practice and results in the field.
Bennett Kleinberg &
"How humans impair automated deception detection performance" examines the deception detection judgment of people when they are reading texts. Specifically, their performance is evaluated against the results providing by a machine learning algorithm, and in several contexts.
Focus Consulting Group is the world's pre-eminent investment industry consultancy. It is committed to helping investment firms become great places to work. Specifically they help investment organizations get better at: