Practical analysis for investment professionals
19 July 2012

Lie Detection 101 for Financial Analysts: How to Spot Manipulators and Actors

Posted In: Behavioral Finance

Financial analysts are in the business of evaluating the truth of information. But there is a shocking lack of academic research about how financial analysts can improve their lie and deception detection skills even though the monetary stakes are measured in trillions (choose your currency).

We hope to remedy this situation by covering the topic of lie detection regularly on this blog. For my inaugural piece on the topic, read “Lie Detection: How Can Financial Analysts Improve Their Ability to Discern the Truth?” What follows below in this series is a review and synopsis of what many criminal justice researchers and practitioners consider to be the standard-bearer among classic texts on the subject: Detecting Lies and Deceit: The Psychology of Lying and the Implications for Professional Practice by Aldert Vrij, professor of applied social psychology at the University of Portsmouth in the United Kingdom. Written in nonclinical language, Vrij’s book provides many penetrating insights about lying and deceitful behavior that provide the groundwork for understanding this important financial industry topic.

Defining Lying and Deceitful Behavior

Let’s start at the beginning: Many people know a lie when they spot it but have never stopped to consider a proper definition. Vrij defines a lie as “a successful or unsuccessful deliberate attempt, without forewarning, to create in another a belief which the communicator considers to be untrue.”

Vrij’s definition has the following advantages:

  • It incorporates intent as an important component of a lie. So statements made in ignorance or due to forgetfulness do not count as a lie. Neither do sarcastic comments count as a lie.
  • Lying does not require the use of words. Think of the student feigning illness to avoid going to school.
  • It states the important lack of forewarning in a lie, so a magician’s performance is not considered a lie, because audience members know beforehand that they will be deceived.
  • It incorporates attempts, and not just successes. This definitively puts the burden of responsibility on the liar.

Environments for Lying and Deceitful Behavior

Belief that lies and deceit can be detected rests on a fundamental assumption: That there is a difference in behavior between a liar and truth teller that can be detected. It is true that there are differences between liars and truth tellers, but those differences are very difficult to detect. Even professionally trained experts are not significantly better than the average person at lie detection.

To improve your chance at catching a deceitful statement, you need to know what types of behaviors occur in different contexts. Think: The difference between lying about a murder and lying about sneaking a cookie from the cookie jar. Here are some of the contexts, scientifically measured, in which liars’ behavior changes:

  • Severity of the lie: Is the lie an outright lie, an exaggeration, or just a lie of omission in which the truth is shared but important details are left out? More severe lies lead to greater changes in behaviors. Think: The intense response on a 2001 conference call by Enron’s Jeff Skilling to questions about its accounting.
  • Complexity of the lie: More complicated lies tax liars. For example, if there is evidence that the liar must refute or if the questioner is suspicious. The taxing effect of these factors can be mitigated by the amount of time the liar has to prepare before telling lies or engaging in deceitful behavior. Think: The complex compensation arrangement in place at AIG circa 2004.
  • Consequence of the lie: If the consequences of being caught are severe, there are increased differences in the liar’s behavior. Think: The behavior of traders who refuse to admit losses and increase the risks they take in order to get back to breakeven.

Why Do People Engage in Lying and Deceitful Behavior?

Researchers have consistently found that lies of varying degree are told twice per day on average and by all people. In fact, nearly 25% of all social interactions involve lying or deceitful behavior. Why do people engage in lying and deceitful behavior when the consequences of discovery can be severe?

  • To make a positive impression on others or to protect themselves from embarrassment or disapproval. Think: A quarterly earnings conference call or one-on-one meeting in which management is trying to maintain a high stock price by relating positive information about the company.
  • In order to obtain advantage. Think: Securing funding in the primary market for a new business endeavor.
  • To avoid punishment. Think: Lying to investors, regulators, or legislative bodies to avoid prosecution.
  • To make others appear better or for another person’s benefit. Think: Companies voting for their favorite sell side analyst in the annual Institutional Investor “All Star” surveys.
  • For the sake of social relationships, that is “social lies.” Think: the braggadocio and flattery of infamous CEOs at analyst conferences.

Clearly the consequences for being caught are very different for each of the above reasons to lie/deceive. In fact, researchers have found mildly negative correlations between the frequency of lies and the severity of punishment, so the more severe punishment, the less people lie.

Types of People Engaging in Lying and Deceitful Behavior

There are four categories of people that tend to tell lies more frequently than others. They include: manipulators, actors, sociable people, and adaptors. For the first two categories of liars I have provided “How to Spot Them” guides because these types of people are frequently encountered in the investment world.

  • Manipulators. These are people who score high in Machiavellianism and who are good in social situations. In other words, people who financial analysts encounter frequently. Not surprisingly manipulators tend to tell more self-oriented lies (lies that benefit the liar) rather than other-oriented lies (lies that benefit someone else). Unfortunately, manipulators tend to persist in lying when they are challenged to tell the truth. Further, this category of liars feels comfortable lying, and they are frequently very good at lying. This makes detection very difficult.
  • Actors. People in this category of lying are often more skilled in regulating their verbal and nonverbal behavior than others. They have high degrees of emotional control and can frequently conceal their true feelings. Additionally, many in this category are very good at playing a role and at self-presentation. Actors also are often very verbally fluent.
  • Sociable people. This category of liars is typically extraverted, and they like to be around lots of people. Lies are more frequent with this crowd, though the types of lies are likely more tilted toward other-oriented lies as they try and smooth social relationships. Not surprisingly, this category of liars is more comfortable lying than those that are socially withdrawn. Last, to a lesser degree than manipulators and actors, sociable people persist longer than truth tellers when lying.
  • Adaptors. Social interactions cause “adaptors” to feel anxious and insecure. Often this makes them highly motivated to make a positive impression on others; one way of accomplishing this is through lying.

How to Better Spot a Manipulator

  • Manipulators tend to dominate conversations, but often seem relaxed, talented, and confident. Sadly, in the financial world, almost every business executive encountered fits this description.
  • Research has continually shown that manipulators are more liked than people with low manipulative skills and are preferred leaders, friends, and partners. In terms of behavioral finance, there is near perfect overlap with manipulators and those who are highly overconfident.
  • Manipulators persist in lying when challenged with the truth. Thus being in possession of the facts is essential when dealing with them.
  • They do not find lying cognitively complicated. If you catch them in a social lie or other-oriented lie, evaluate the complexity of the lie they told. If they were able to tell a complex lie without much effort, they are likely a manipulator.
  • Manipulators view others cynically. To spot them look at their statements about, or treatment of, other people. High degrees of expressed cynicism about other people and groups can indicate a manipulator.
  • They show little concern for conventional morality. Look for evidence of behavior that clearly falls outside of the edges of even marginal behavior. Think: Wire tapping the competition.
  • Fortunately, manipulators often publicly self-identify as they openly admit that they will lie, cheat, and manipulate others in order to get what they want. Think: Justifying deceitful behavior under the auspices of “it was good for competition” or “everyone else does it, too.”

How to Better Spot an Actor

  • In moments of high stress, look for extreme breaks from the normal behavioral pattern into one that is more emotional. Think: Those that are not only passive aggressive but also massive aggressive.
  • Does the behavior of the person dramatically change depending on the context/role they are expected to play? How different are they when they “take the stage”?
  • When confronted with facts contrary to their view, do they persist in lying? Actors often do persist in lying. (Note: Manipulators also engage in this behavior.)
  • Actors are comfortable lying and find it less difficult to lie. Just as with manipulators, pay attention to how easily they find it to lie in social situations.


Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
Jason Voss, CFA

Jason Voss, CFA, tirelessly focuses on improving the ability of investors to better serve end clients. He is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor and the CEO of Active Investment Management (AIM) Consulting. Voss also sub-contracts for the well known firm, Focus Consulting Group. Previously, he was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund to noteworthy returns. Voss holds a BA in economics and an MBA in finance and accounting from the University of Colorado.

Ethics Statement

My statement of ethics is very simple, really: I treat others as I would like to be treated. In my opinion, all systems of ethics distill to this simple statement. If you believe I have deviated from this standard, I would love to hear from you: [email protected]

17 thoughts on “Lie Detection 101 for Financial Analysts: How to Spot Manipulators and Actors”

  1. Jason,

    Kudos on an insightful and well-written article. (I especially like your use of sub-heads and bullet points.)

    I’m glad to see objective standards for lie detection, which is a subjective exercise. The severity of the lie, and the personality profiles are very useful, and articulates what many of us think of as our intuition. Instead of making a “gut” call, now I can be more specific.

    For example, one deceitful person I know is comfortable with contradictions between private and public behavior. This cynicism about conventional morality made me suspicious, and now I know why: You note it as a symptom of a manipulator (especially when combined with sociability, charm, and the ability to conceal emotions).

    Thanks again for a great article–I’ll have to check out the book.

  2. Hi Robert,

    Thank you for your comment. Expect more content from CFA Institute on the subject of lying/deceit behaviors. You might also check out the first piece I did on this subject back in December – – as well as my video interview with Dr. Maria Hartwig – . Both of these pieces make a similar point to yours above.

    With smiles!


  3. Peter C. Stimes, CFA says:

    Thanks for researching and writing so cogently on the subject.

    As a financial analyst, I often came across deceptive behavior. Rather than becoming cynical or discouraged, I adopted a simple rule: “everybody gets one chance to fool me; nobody gets a second chance.”

    I realized that detecting lies was often difficult, but I reached the conclusion that those who lie do it habitually and are no longer – ever – to be trusted once they have been exposed.

    1. Hello Peter,

      In a forthcoming post about another classic lying/deceptive behavior text I’ll be discussing the fact that researchers consistently find that all of us tell lies and on a daily basis. I think what you meant about ‘liars’ was folks who tell lies that directly, and negatively affect others. Of that ilk, there are thankfully very few.

      With smiles,


  4. Marc Filion, CFA says:

    Very insightful! As an internal auditor I continually presume my interlocutor is telling the truth although the possibility of being told a big one, however remote, exists. Looking forward to more posts on the subject.

    1. Hello Marc,

      Thank you for the feedback – I am happy that you liked the piece. There will be more content forthcoming on this subject. Look for another upcoming blog post here on The Enterprising Investor about another classic lying/deceit behavior text. Furthermore, a recent survey of CFA Institute members resulted in a substantial amount of data gathered and will result in a subsequent paper. Those results will be discussed, in all likelihood, on this same forum. Stay tuned!

      With smiles,


  5. Kevin Mason, CFA says:

    It would be interesting to compare the traits of a “manipulator” versus those of a “narcissist.” I expect there would be a pretty strong overlap based on the details you described above.

    I’ve encountered several CEOs with narcissistic behavior that are often able to “win over” investors, for a time. When things eventually unravel, as they inevitably do, their ability to protect themselves from blame is rather masterful, and fits with the traits of the manipulator.

    Unfortunately, business and politics seem to attract these types of individuals in spades.

    1. Hello Kevin,

      Agree with everything that you said. One of the reasons I featured those personality types was based on my own experience as a mutual fund portfolio manager and the frequency with which I encountered folks that fit those descriptions. Ugh!

      The book I referenced for the above analysis is considered the lying/deceit behavior research community’s classic text. It is difficult to find copies, but it is well worth investigating.

      Stay tuned for more material on this same subject.

      With smiles!


  6. Can you tell me where I can order this book? I don’t see it on Amazon.

  7. Hi Karen,

    The book is unfortunately out of print. My piece seems to have created a run on the used copies such that the price has been dramatically bid up. However, I took a look at Amazon and it looks like there are still used copies for sale at $29.99.

    Also, don’t miss the other posts in this series: one from 21 December 2011 and one a video interview with Dr. Maria Hartwig – a lying/deceit behavior specialist.

    With smiles,


  8. Mark Menefee says:

    While my book Easy Lie Detection does not appear to be as in-depth, or target specific as Lie Detection 101, it is a good primer for those who are starting out. It covers broader scenarios and is quite inexpensive at $2.99. Currently it is being promoted for free on Amazon from September 21st through the 25th.

    1. Hello Mark,

      Thank you so much for commenting on my above piece.

      With smiles,


    1. Hi Davis,

      Thank you for your kind word of support. Please check back with The Enterprising Investor for more information on lying/deceit detection material.

      With smiles,


  9. Jeremy Kesby says:

    Hi Jason,

    I love how you’ve managed to extract some of the really salient points from what is a very information-dense go-to text on all things lies and deception.

    You’d have to agree that Vrij is one of the world’s foremost experts on the subject. Your adaptation of his material is the financial sector is very cool.

    Another excellent resource is Spy the Lie, by Phil Houston et. al. Here’s the link:


    Jeremy Kesby

  10. Hello Jeremy,

    Thank you for your kind comments. I have been working with a criminal justice professional for the last several years to develop deceit detection tools for the criminal justice profession. Phase one of that work has been examining the beliefs of financial professionals. In fact, our work is going to be featured in a forthcoming Journal of Behavioral Finance paper. Look for it next year.

    It looks like you have a background in this space, so your praise is doubly welcome. Thanks for featuring the link above.

    With smiles,


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