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Benford's Law as an Indicator of Fraud in Economics

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  • Karl‐Heinz Tödter

Abstract

. Contrary to intuition, first digits of randomly selected data are not uniformly distributed but follow a logarithmically declining pattern, known as Benford's law. This law is increasingly used as a ‘doping check’ for detecting fraudulent data in business and administration. Benford's law also applies to regression coefficients and standard errors in empirical economics. This article reviews Benford's law and examines its potential as an indicator of fraud in economic research. Evidence from a sample of recently published articles shows that a surprisingly large proportion of first digits, but not of second digits, contradicts Benford's law.

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  • Karl‐Heinz Tödter, 2009. "Benford's Law as an Indicator of Fraud in Economics," German Economic Review, Verein für Socialpolitik, vol. 10(3), pages 339-351, August.
    • Handle: RePEc:bla:germec:v:10:y:2009:i:3:p:339-351
    DOI: 10.1111/j.1468-0475.2009.00475.x
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    References listed on IDEAS

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    3. David Giles, 2007. "Benford's law and naturally occurring prices in certain ebaY auctions," Applied Economics Letters, Taylor & Francis Journals, vol. 14(3), pages 157-161.
    4. Michael Graber & Andrey Launov & Klaus Wälde, 2008. "Publish or Perish? The Increasing Importance of Publications for Prospective Economics Professors in Austria, Germany and Switzerland," German Economic Review, Verein für Socialpolitik, vol. 9(4), pages 457-472, November.
    5. Michael Graber & Andrey Launov & Klaus Wälde, 2008. "Publish or Perish? The Increasing Importance of Publications for Prospective Economics Professors in Austria, Germany and Switzerland," German Economic Review, Verein für Socialpolitik, vol. 9(4), pages 457-472, November.
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    Cited by:

    1. Schräpler Jörg-Peter, 2011. "Benford’s Law as an Instrument for Fraud Detection in Surveys Using the Data of the Socio-Economic Panel (SOEP)," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 231(5-6), pages 685-718, October.
    2. Cerqueti, Roy & Maggi, Mario, 2021. "Data validity and statistical conformity with Benford’s Law," Chaos, Solitons & Fractals, Elsevier, vol. 144(C).
    3. Willis A. Jones, 2020. "A Benford Analysis of National Collegiate Athletic Association Division I Finance Data," Journal of Sports Economics, , vol. 21(3), pages 234-255, April.
    4. El Mouaaouy Florian & Riepe Jan, 2018. "Benford and the Internal Capital Market: A Useful Indicator of Managerial Engagement," German Economic Review, De Gruyter, vol. 19(3), pages 309-329, August.

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