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Benford's Law as an Indicator of Fraud in Economics

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  • Karl-Heinz Tödter
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    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. Copyright 2009 The Author. Journal Compilation Verein für Socialpolitik and Blackwell Publishing Ltd.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0475.2009.00475.x
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    Bibliographic Info

    Article provided by Verein für Socialpolitik in its journal German Economic Review.

    Volume (Year): 10 (2009)
    Issue (Month): (08)
    Pages: 339-351

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    Handle: RePEc:bla:germec:v:10:y:2009:i::p:339-351

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    1. McCullough, B. D. & McGeary, Kerry Anne & Harrison, Teresa D., 2006. "Lessons from the JMCB Archive," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1093-1107, June.
    2. Andreas Diekmann, 2005. "Not the First Digit! Using Benford’s Law to Detect Fraudulent Scientific Data," Others 0507001, EconWPA.
    3. B. D. McCullough & H. D. Vinod, 2003. "Verifying the Solution from a Nonlinear Solver: A Case Study," American Economic Review, American Economic Association, vol. 93(3), pages 873-892, June.
    4. David Giles, 2007. "Benford's law and naturally occurring prices in certain ebaY auctions," Applied Economics Letters, Taylor and Francis Journals, vol. 14(3), pages 157-161.
    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, pages 457-472, November.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How an arcane statistical law could have prevented the Greek disaster
      by mueller2 in Economics Intelligence on 2011-07-28 07:37:06
    2. Benford's Law: using stats to bust an entire nation for naughtiness
      by Ben Goldacre in Bad Science on 2011-09-23 16:30:00
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    Cited by:
    1. Joerg-Peter Schraepler, 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), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 231(5-6), pages 685-718, November.

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