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1 January 2016 CFA Institute Journal Review

Detecting Lies in the Financial Industry: A Survey of Investment Professionals’ Beliefs (Digest Summary)

  1. Thomas P. Bernardi

News headlines featuring deceptive behavior in the financial industry are a common occurrence. Studying which characteristics financial professionals identify with deceptive behavior, how confident they are in identifying such behavior, and whether they are interested in learning better ways to detect it will help those in the financial industry be able to identify and confront deception.

What’s Inside?

The authors address three issues relating to financial professionals’ beliefs about deceptive behavior. First, they find that financial professionals believe nonverbal cues are more useful in identifying deceptive behavior than are verbal cues. Second, financial professionals view themselves as more likely to detect lies in their professional and personal lives when compared with other groups. Lastly, financial professionals place a high importance on learning how to better identify and handle deceptive behavior.

How Is This Research Useful to Practitioners?

Although studies have been done on people’s beliefs about deception and lie detection, studies focusing exclusively on the beliefs of financial professionals have received little, if any, focus. This study is the first to focus specifically on lie detection in the financial industry.

The authors find that financial professionals believe nonverbal cues provide the best way to determine whether someone is lying or telling the truth. Participants in the authors’ survey believe that deceptive people appear more nervous, are more fidgety, and make less eye contact than truth tellers. These findings align with previous studies that found similar responses from nonfinancial professionals. Despite these findings, no previous studies indicate there is a single, universal behavior that can reveal deceptive behavior.

Financial professionals believe they are more accurate in detecting lies than average participants in previous studies. This finding is in contrast to previous studies that have shown there is only a 50% chance of detecting a lie. There have been no studies to date proving that one group of people is more capable of lie detection than any other. This lack of proof leads the authors to believe that financial professionals experience overconfidence in their ability to detect deception. Despite believing they have a greater ability to detect deceptive behavior, financial professionals do believe it is important to learn new ways to identify and cope with deceptive behaviors. Interest in this type of education is significantly higher than that found in other groups examined in previous studies.

The authors’ work is beneficial in learning more about what financial professionals believe and think about characteristics of deceptive behavior and their own ability to identify deceptive behavior. Further research on this topic will help the industry learn how to identify and confront deceptive behavior.

How Did the Authors Conduct This Research?

The authors conduct a survey of members of CFA Institute. A total of 25,000 members were sent the survey, resulting in 607 final respondents for a response rate of 2.4%. The respondents were geographically diverse, representing 76 countries. The majority of the respondents lived in Europe and North America. The majority of the respondents were males, employed fulltime, and CFA charterholders. A broad array of financial professionals was represented, including portfolio managers, research analysts, consultants, and advisers. The participants were primarily on the buy side of the investment business.

There were 11 characteristics presented to survey respondents, and the respondents were asked to judge whether these characteristics were more commonly associated with lying or telling the truth. They were asked to assess their own lie detection accuracy and their own interest in learning new techniques and approaches to identifying and dealing with lie detection. The authors identify financial professionals’ beliefs about lie detection and create a foundation for research on a subject that has previously been untouched.

Surveying a more diverse population of investment professionals may help broaden the scope of the study. Additionally, pinpointing specific groups within the financial industry may provide an even more focused analysis. Analyzing various groups, such as men versus women, buy side versus sell side, portfolio managers versus research analysts, and experienced versus inexperienced, may lead to a better understanding of how specific financial professionals differ, or do not, from one another in regard to deceptive behavior and beliefs.

Abstractor’s Viewpoint

We need to better understand how financial professionals identify and feel about deception before issues regarding deceptive behavior can be eliminated. The authors provide a solid framework to better understand how the surveyed financial professionals think and feel (at the time of the survey) about identifying and educating themselves in regards to deceptive behavior. As more research and more comprehensive surveys are done on this topic and we gain a better understanding of how to distinguish deceptive behavior, our industry will be better suited to confront and adapt to these issues. Financial professionals are eager to learn new ways to continue to educate themselves in identifying deception. By working together and continuing the studies on this subject, the industry will continue to advance in the right direction.

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