Benford's Law, the Fraudster's Friend

In 1938, Dr. Frank Benford, a physicist at GE, noticed that pages on a logarithm book were dirtier if the pages contained digits starting with 1. After studying more than 20,000 data sets, he derived a theory that says real statistics have a preclusion to begin with the digit 1. So, for instance, a normal person trying to fake an amount on, say, their taxes, would probably pick 5 or 6 to start the fraudulent number ($584 in deductions, say). Statistically, however, a real deduction might be something like $1,097. This even works with different scales so the theorem holds true for dollars, yen, half-lives of radioactive elements, town populations, etc.

They’re even writing software to run through tax and accounting data looking for patterns that don’t fit. It’s not perfect, but what a weird thing to fall out from someone who was observant enough to notice dirty pages on a book.

Link [via digg]

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