Last week in our article entitled, “Financial Professionals’ Beliefs about Deception,” we reviewed our scientific paper, “Detecting Lies in the Financial Industry – A Survey of Investment Professionals’ Beliefs,” published in the Journal of Behavioral Finance. This week we review another of our scientific papers published in that journal, “Investment Professionals’ Ability to Detect Deception: Accuracy, Bias and Metacognitive Realism.”[i] Our research, conducted along with deception scientists, was history’s first that explored how good finance pros are at detecting deception. Here is a summary of that work.
General Public’s Ability to Detect Deception
Before discussing finance pros’ ability to detect deception it is helpful to consider the success rate of people, in general. As discussed in some of our previous articles, the global success rate for deception detection as measured in two separate meta-analyses is just around 54%. This is true whether someone is a lay person or a professional, such as someone working in law enforcement or psychology. In other words, people are just slightly better than chance at detecting deception.
Crucially, most people when attempting to detect deception rely on pan-cultural fictions about how to do it. Namely, they tend to rely on body language cues or vocal cues. Most of these beliefs about how to detect deception have been soundly debunked.
Overview of the Deception Science Work
Our scientific research was done with the cooperation of 215 financial professionals whose demographics were as follows:
- Gender: 91% men
- Age range: 24 to 68 years, mean of 39.03 years
- Years of experience: 0-10 years: 37.8% // 11-20 years: 43.0% // 20+ years: 19.2%
These demographics indicated that the sample was representative of the profession’s typical makeup. Participants were then asked to evaluate various kinds of stimulus materials, including video recordings ranging from those participating in an experimental setup, to convicted felons, and to real-life high stakes lies. Audio recordings of known fraudulent earnings calls were used as the stimulus materials for measuring finance pro’s ability to discern deception within the field.
Investment Pros’ Ability to Detect Deception
Accuracy for deception in a personal life setting was 50.2%, or essentially 50:50 chance. While, accuracy in evaluating deception in a financial setting was 51.8%. Again, this result was fairly close to the odds of guessing. But what about finance pros’ ability to discriminate between truthful statements and deceptive statements?
Overall accuracy for evaluating truthfulness was 49.7%, and for deception it was 51.6%. Disturbingly, within finance when the pros’ assessed a statement as true they were 60.7% accurate, but just 38.2% accurate when they assessed a statement as deceptive. Finance pros also showed a statistically significant and equally disturbing truth bias of 60.6%.
We also evaluated the level of accuracy against the self-reported confidence in judgments of finance pros. Regardless of the confidence expressed by finance pros in their deception detection abilities their accuracy remained very stable. The one exception was for those finance pros who reported a confidence in their judgments of >90% where overall accuracy was a paltry 29.8%.
Age was unrelated to deception detection accuracy, as was years of experience. Pros with the least experience were 43.8% accurate; those with 10-20 years of experience were 51% accurate; and those with 20+ years of experience were 51.6% accurate. These differences were not statistically significant.
Conclusion
In conclusion, finance pros are slightly worse than the general population at deception detection. This is true whether they are assessing deception in their personal lives or in their professional lives. There were no demographic distinctions that were significant. Finance pros showed several disturbing things:
1. Their ability to discern deception was just 38.2%.
2. They showed a strong truth bias of 60.6%.
3. For those most confident in their deception detection abilities, their actual ability was just 29.8%.
[i]Hartwig, Maria; Jason A. Voss; Laure Brimbal; & D. Brian Wallace. “Investment Professionals’ Ability to Detect Deception: Accuracy, Bias and Metacognitive Realism.” Journal of Behavioral Finance (2017): Vol 18, No. 1, pp. 1-13
0 Comments