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Benford's Law as an Indicator of Fraud in Economics

Authors


Address for correspondence: Karl-Heinz Tödter, Deutsche Bundesbank, Research Centre, Wilhelm-Epstein-Straße 14, D-60431 Frankfurt am Main, Germany. Tel.: +49 69 9566 2380; fax: +49 69 9566 4026; e-mail: karl-heinz.toedter@bundesbank.de

Abstract

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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