Psychopaths are the subject of endless fascination. We tend to apply that term loosely to people who engage in bad acts, ranging from pathological lying and repeated deception to major fraud and serial killing. Psychopaths rival pedophiles in the panoply of those we despise and fear. Given this fascination with psychopathy, and the public’s current negative view of Wall Street (see Greg Smith’s op-ed column in The New York Times about his resignation from Goldman Sachs), it is no surprise that Twitter, the blogosphere, and traditional media have been buzzing about “The Financial Psychopath Next Door,” an article in CFA Magazine by Sherree DeCovny (subscription required).

The headline-grabbing factoid in the article was an estimate that 10% of people in the financial services industry are psychopaths. And that’s a conservative estimate, according to Christopher Bayer, a Wall Street psychotherapist cited by DeCovny.

DeCovny describes “financial psychopaths” as individuals who seek thrills, lack empathy, don’t care about what others think, are charming and intelligent, and are skilled at lying and manipulation. Citing Richard Peterson, managing partner of MarketPsych (a firm that provides psychological and behavioral finance training for the industry), DeCovny notes that these are some of the traits that also predict success on Wall Street.

To understand the implications of all this, it helps to define psychopathy. It is a psychological condition based on well-established diagnostic criteria. These include glibness and superficial charm, conning and manipulative behavior, lack of remorse and empathy, refusal to take responsibility for one’s behavior, and others.

Determining whether a person is a psychopath is generally done using a test like the Psychopathy Checklist-Revised (PCL-R), developed by Robert Hare and his colleagues. People who are “normal” invariably score a few points on such scales. True psychopaths score in the top 25%.

Using formal diagnostic criteria, researchers have estimated that about 1% of Americans — about 3 million people — are psychopaths. Based on statistics alone, there are some true psychopaths on Wall Street, as there are in all walks of life. The odds increase further when we consider the competitive advantage that some of the characteristics of psychopathy, including willingness to take risks, can provide in the field.

Psychopathy is mistakenly regarded as an all or nothing affair: you either are a psychopath or you aren’t. If that were the case, saying that 10% of people on Wall Street are psychopaths could actually be somewhat comforting, since it implies that the remaining 90% are not and so shouldn’t cause us any concern.

That yes-or-no approach dangerously ignores the fact that psychopathic behavior exists on a continuum. A great deal of damage can be done by individuals who fall in between folks who are “normal” and true psychopaths. These are individuals who would never be diagnosed as a psychopath, but whose behavior to varying degrees can be just as deceptive, dangerous, and remorseless as that of a full-blown psychopath. These individuals are sub-clinical psychopaths, what my colleague James Silver and I refer to as “almost psychopaths” in our upcoming book, Almost a Psychopath.

Two things should be noted about the claimed estimate that 10% of people in the financial services industry are psychopaths. First, it is just that — an estimate — and not based on a scientific study. Second, it is likely an overestimate of true psychopaths in the industry, but an underestimate of those who fall into the “almost” category. Formal studies indicate that as much as 15% of the general population can be characterized as almost psychopaths. And if we consider that the financial services industry may select for people with characteristics of psychopathy, it is fair to say that the number of people in the industry who fall into the “almost” range is at least that high. As such, individuals predisposed to fraud, deceit, manipulation, and insider trading may be far more numerous than the 10% estimate that has attracted so much attention.

But there is good news. First of all, it is possible to screen out almost and full-blown psychopaths during the hiring process and after. Some of the key indicators are:

Glibness and superficial charm

Lack of empathy

Consistent decisions in their self interest, even where it is ethically questionable

Chronic, sometimes transparent lies, even with regard to minor things

Lack of remorse

Failure to take responsibility for their actions, and instead blaming others

Shallow emotions

Ignoring responsibilities

Persistent focus on gratifying their own needs at the expense of others

Conning and manipulative behavior

The only way to deal with a true psychopath is to get him or her out of the organization as fast as possible. While full-blown psychopaths are not deterred by fear and do not learn from punishment, “almost psychopaths” can get the message that adverse consequences will follow misconduct. As a result, strictly enforced firm policies can be effective in deterring those who may be tempted to engage in illicit conduct. As long as the firm wants to deter them.