In the financial markets, a lot rides on the word of a company’s top executives. If a CEO tells a lie, a lot of shareholders can get hurt.

Now, after studying thousands of corporate earnings calls, two researchers from Stanford University think they’ve come up with a way to tell when senior executives are fibbing.

It’s a question that people have been wrestling with for as long as humans have been interacting with each other.

“I think since the Garden of Eden we’ve been trying to figure this out — who’s lying and who’s not lying,” says David Larcker, a professor of accounting at Stanford’s Graduate School of Business. (…)

Kumar was asked, “Can your books be trusted?” And he replied by saying, “We hire the very best auditors.” Larcker says that can be a big warning sign.

“You basically are not answering the question. You’re basically making reference to somebody else, and those are the kinds of things in psychology you look for,” he says. (…)

Zakolyukina says lying executives tend to overuse words like “we” and “our team” when they talk about their company. They avoid saying “I.” (…) Lying CEOs also tend to use a lot of words that express positive emotion — things are fabulous and fantastic and extraordinary.

{ NPR | Continue reading }

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photo { Richard Avedon }

avedon, economics, psychology, shit talkers | October 20th, 2010