Detecting Lies in the Financial Industry: A Survey of Investment Professionals' Beliefs

Abstract

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.

Keywords:

• Investment professionals
• Interpersonal deception
• Lie detection

ACKNOWLEDGMENTS

We are thankful to the CFA Institute for their assistance with data collection. We are particularly indebted to Melissa Looney and Prashant Goswami for their help with the distribution of the survey.

Notes

1. CFA is a globally recognized, graduate level curriculum that provides practical investment analysis and portfolio management skills with a special emphasis on high ethical and professional standards of conduct.

2. “Buy side” refers to investment professionals whose primary responsibility is to act as a fiduciary for retail investors conducting financial analysis and making investment recommendations based on that analysis. Thus, they are frequently in the position of evaluating the truth of statements from others.

3. To date, the only group that has been found to deviate from the widespread stereotype of liars as gaze aversive and fidgety is criminals. For a discussion of these results and the possible effects of environment on decision making, see Granhag, Andersson, Strömwall, and Hartwig [2004]).