All Income Tax Cheaters--Listen Up

Benford's Law describes a curious phenomenon about the counterintuitive distribution of numbers in sets of non-random data:

A phenomenological law also called the first digit law, first digit phenomenon, or leading digit phenomenon. Benford's law states that in listings, tables of statistics, etc., the digit 1 tends to occur with probability ~30%, much greater than the expected 11.1% (i.e., one digit out of 9). Benford's law can be observed, for instance, by examining tables of logarithms and noting that the first pages are much more worn and smudged than later pages (Newcomb 1881). While Benford's law unquestionably applies to many situations in the real world, a satisfactory explanation has been given only recently through the work of Hill (1996).

Think of Benford's Law in connection with the IRS using it to detect tax fraud. If you're cheating on your taxes, you might fill in amounts of money somewhat at random, the distribution of which would not match that of actual financial data. So if the digit "1" shows up on Al Capone's tax return about 15% of the time (as opposed to the expected 30%), the IRS can reasonably assume they should take a closer look at Mr. Capone's return.

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