16 Sep 2012 by Gottfried Leibbrandt

Does your amount start with a 1? Benford’s law

As we near the end of my book, I thought it might be time for a little pop quiz. Question: When is 1 the most popular number and 9 the least popular? Answer: Whenever numbers are more or less evenly spread over multiple orders of magnitude. In these situations, Benford’s law, or the first-digit law, applies: the first digit of the amount is much more likely to be 1 than 9. Benford law’s predicts that for 30% of all payments the first digit of the amount is a 1, while it is a 9 for only 5% of payments. This applies to any set of numbers that span several orders of magnitude such as incomes on tax returns, annual sales of firms, and the population of cities. It even applies to SWIFT transfers.

Download chapter 11, Does your amount start with a 1? Benford’s law, here.


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