Investment Professionals' Ability to Detect Deception: Accuracy, Bias and Metacognitive Realism

ABSTRACT

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.

KEYWORDS:

• Interpersonal deception
• Investment professionals
• Lie detection
• Metacognitive realism

Acknowledgments

The authors are thankful to the CFA Institute for their assistance with data collection. We are particularly indebted to Prashant Goswami, Melissa Looney, and Lisa Schuetz. Also, we are thankful to Bloomberg, L.P., especially Andy Demeter and Jim Ziegler for helping us generate stimulus materials.

Notes

1. For more information on how guilt was established, see Vrij and Mann [2001].