From The Wolf of Wall Street to Gordon Gecko, popular culture isn't short of depictions of psychopathic charmers who, at least initially, use their ruthless charisma to skyrocket to incredible business success. No wonder the public might start to get the impression that a lack of empathy might actually be a leg up in business.
And it's not just Hollywood. Reputable research shows that business executives are far more likely to exhibit psychopathic traits than members of the general public. Scientists even looked into whetherso many psychopaths major in business and economics because those fields reward them for their cold-bloodedness.
But despite our collective suspicion that business might not just attract psychopaths but actually reward them too, new science actually punctures this belief, at least when it comes to Wall Street. Psychopaths actually make terrible investors, recent research reveals.
Time to check your stereotypes
The new study, published in Personality and Social Psychology Bulletin, was carried out by Dacher Keltner of the University of California, Berkeley and colleagues. For the research, the team analyzed existing videos of 101 hedge fund managers, which had been created over the past decade for marketing purposes.
In the interviews the investors were asked questions like "What is your outlook on opportunities in the current market?" and "What is your philosophy on risk management?" The scientists rated their answers and body language for signs of the so-called "dark triad" of personality traits - narcissism, psychopathy and Machiavellianism.
They then compared these scores with each fund's performance. Did more dark traits in a manager lead to better or worse investment results? Machiavellianism didn't seem to matter at all, while narcissism was correlated with higher volatility in the value of the funds. But the real standout finding came when the researchers looked at psychopathy.
"For managers who displayed Psychopathic Tendencies at a level of one standard deviation above the mean, an investment of $1 million earned $1,161,694 (15 percent) less over the course of ten years, on average, compared with a manager who ranked average for psychopathy. More extreme psychopathy led to even weaker returns. For example, the same $1 million investment by a manager who rated two standard deviations above the mean for psychopathy earned 30 percent less, on average," reports the British Psychological Society Research Digest blog.
Why do psychos make bad investors?
What's behind this dramatic fall off in performance among managers with more psychopathic tendencies? The researchers can't be sure, but they suggest that perhaps psychopathic managers are more bullying of subordinates, leading to less good ideas being heard within the firm, and therefore poorer returns.
Whatever the reason, the takeaway is pretty clear if not entirely surprising in any other context outside investing. Being a jerk doesn't pay, not even in the supposedly cut-throat world of finance.
Keep that in mind next time you're wondering who to hire or who you should let manage your nest egg. Just forget these facts the next time you sit down for Hollywood's latest tale of Wall Street excess - it'll ruin the fun.