The Diary of Frank Benford

By marketsonline

Published | Wednesday, September 28th, 2016


The purpose of this e-book is to explain one of the most universal analytic techniques used by organisations and statisticians when validating tabulated data, Benford’s Law Frank Albert Benford, Jr., (1883 Johnstown, Pennsylvania – December 4, 1948) was an American electrical engineer and physicist best known for rediscovering and generalizing Benford’s Law, a statistical statement about the occurrence of digits in lists of data.

Benford’s Law, is also called the first-digit law. It is a phenomenological law about the frequency distribution of leading digits in many (but not all) real-life sets of numerical data. The law states that in many naturally occurring collections of numbers, the leading significant digit is likely to be small. For example, in sets which obey the law, the number 1 appears as the most significant digit about 30% of the time, while the number 9 appears as the most significant digit less than five percent of the time. By contrast, if the digits were distributed uniformly, they would each occur about 11.1% of the time. It has been shown that this result applies to a wide variety of data sets, including electricity bills, street addresses, stock prices, house prices, population numbers, death rates, lengths of rivers, physical and mathematical constants, and processes described by power laws (which are very common in nature).

The use of Benford’s Law has been popularized by Mark Nigrini, an accounting professor at West Virginia University, to detect anomalies in tabulated data.

This e-book proposes a fictional data clinic where patients present tabulated data for Benford to analyse and provide an opinion as to its validity.

 

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