The issue with using Benford's Law with analysis is that as soon as people realize that you're using it, data can easily be manipulated to make it compatible.
The previous article by Tim Harford mentioned that Madoff's financial data was Benford compatible.
So I doubt that using it would have actually prevented the Greek or any other disaster.
The article says the opposite, though it's hard to put a lot of credibility on something starting with "according to statisticians"...
According to statisticians, it is almost impossible to manipulate data in a way that a certain outcome is guaranteed and Benford’s Law is met at the same time. Hence, tax authorities in several countries are using Benford’s Law as a default testing device.
I re-read the article and you're right. The article seems to imply Madoff as an exception rather than the common case, but I still feel that if data is being manipulated at such a vast scale where an entire countries economic activity is misrepresented, you will be able to find people as smart as Madoff to 'fit' the data as per requirements.
You certainly can find people smart enough to make sure that their fraudulent statistics will meet Benford's Law (or any other data model you wish). The article points out that Greece didn't find people this smart.
Not meeting Benford's Law is a good indicator that there has been some dodgy dealing. However, meeting Benford's Law is not a good indicator that everything is above board.
Comments
The issue with using Benford's Law with analysis is that as soon as people realize that you're using it, data can easily be manipulated to make it compatible.
The previous article by Tim Harford mentioned that Madoff's financial data was Benford compatible. So I doubt that using it would have actually prevented the Greek or any other disaster.
The article says the opposite, though it's hard to put a lot of credibility on something starting with "according to statisticians"...
According to statisticians, it is almost impossible to manipulate data in a way that a certain outcome is guaranteed and Benford’s Law is met at the same time. Hence, tax authorities in several countries are using Benford’s Law as a default testing device.
I re-read the article and you're right. The article seems to imply Madoff as an exception rather than the common case, but I still feel that if data is being manipulated at such a vast scale where an entire countries economic activity is misrepresented, you will be able to find people as smart as Madoff to 'fit' the data as per requirements.
You certainly can find people smart enough to make sure that their fraudulent statistics will meet Benford's Law (or any other data model you wish). The article points out that Greece didn't find people this smart.
Not meeting Benford's Law is a good indicator that there has been some dodgy dealing. However, meeting Benford's Law is not a good indicator that everything is above board.
You're looking at it from the opposite point of view than the one I'm making.
The reason Greece didn't find people smart enough to satisfy Benford's is that Benford's wasn't being used in the audit.
If it was common knowledge that audits utilize this Law, you can bet that Greece's data would have been compatible.