WE RECOMMEND

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.

Maria Hartwig,

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.

Maria Hartwig,

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.

Maria Hartwig

This is the doctoral thesis of Dr. Maria Hartwig who pioneered one of the deception detection interrogation techniques that works: Strategic Use of Evidence (SUE). Full of interesting data, as well as practical applications. Highly recommended.

Bella DePaulo

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:

1. How often do people lie?
2. What do people lie about?
3. How do liars justify their lies?
4. How do liars tip off their lies?
5. When liars care the most about getting away with their lies, is that when they are most likely to screw up?
6. How good are people at knowing when someone is lying to them?
7. Do people have intuitions about deceptiveness that they don’t know how to tap into? 

Pars Anders Granhag,

Aldert Vrij &

Bruno Verscheure

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.

• Includes comprehensive coverage of the latest scientific developments in the detection of deception and their implications for real-world practice
• Examines current challenges in the field - such as counter-interrogation strategies, lying networks, cross-cultural deception, and discriminating between true and false intentions
• Reveals a host of new approaches based on cognitive psychology with the potential to improve practice and results, including the strategic use of evidence, imposing cognitive load, response times, and covert lie detection
• Features contributions from internationally renowned experts

Bennett Kleinberg &

Bruno Verscheure

"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.

• First, people's ability to detect deception simply by reading a document is just 50%, or chance odds.
• Second, a machine learning algorithm was used to evaluate the truthfulness or deceptiveness of communications and was successful 69% of the time.
• Third, people, when granted the ability to override the judgement of the machine-learning algorithm is 51%, or much worse than the machine learning algorithm by itself.
• Last, when the power of the override function of people was limited, the ability to accurately assess the veracity of communications is 67%; still worse than that of the computer by itself.