Benford’s Law and Greece

I’ve written about Benford’s Law before. The law predicts the frequency at which first numbers ought to appear in a random distribution. The law has been used to catch folks who have fudged their data.

Tim Harford highlights some researchers who have turned Benford’s Law on Greece’s economic data:

Manipulated data often fail to satisfy Benford’s Law. A manager who must submit receipts for expenses over £20 may end up filing claims for lots of £18 and £19 expenses – and the data will then contain too many ones, eights and nines. A forensic accountant can easily check this, and while not an infallible check (fraudster Bernard Madoff filed Benford-compatible monthly returns), it’s an indicator of possible trouble.

Which brings us back to the data Greece submitted to the European statistics agency. According to Rauch and his colleagues, Greek data are further from the Benford distribution than that of any other European Union member state. Romania, Latvia and Belgium also have abnormally distributed data, while Portugal, Italy and Spain have a clean bill of health.

Would a Benford-style analysis have helped spot Greece’s problems? In principle, yes. In practice, one wonders whether politics would have trumped statistics. A shame: according to Benford’s Law, Greece’s data were particularly odd in 2000, just before it joined the euro.

(H/T: Jason Zweig)

Posted by on September 14th, 2011 at 9:17 am


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