Lie Detection
Dishonest companies tend to leave five textual fingerprints in their communications that differ from those of more truthful firms.
Technology can give investment pros a huge advantage in evaluating the truthfulness of company communications.
"Everybody knows we are in a post-truth world," deception detection expert Pamela Meyer told delegates at the 70th CFA Institute Annual Conference in Philadelphia. "People will tell you anything." So what are the verbal and nonverbal clues indicating someone might be deceiving us?
“What analysts think they know about lie detection is wrong,” says Jason Voss, CFA. Moreover, financial professionals have a pronounced belief in their own capacity to detect lies. This combination of low accuracy and high confidence means it’s critical that financial professionals question their own abilities.
Conventional wisdom is quite often wrong and misapprehensions can easily prevail, cemented perhaps by groupthink tendencies intrinsic to peer-influenced media.
Chief among investors' qualitative concerns are the honesty and character of management. When character meets communications you have candor. Rittenhouse Rankings is a company that ranks business candor and its results are predictive of future stock performance.
Jason Voss, CFA, provides a summary of the major research about lying and deceit behaviors, including a brief overview of dozens of research papers.
In order to detect lies and deceit a financial analyst needs to understand the basics. For example, in what contexts do people lie, and what types of people are more likely to lie or deceive?
Dr. Maria Hartwig, a deception and lying behavior expert, discusses the state of lie detection in finance. She also reviews important lie detection research and what the future holds for lie detection in finance.
Can a better understanding of behavioral finance, that is, behavioral intelligence, translate into improved investment returns? Opinion may be divided, but research suggests that it can.