Remarks on the Use of Benford's Law

Abstract

Benford's law is a method of digital analysis that is used to probe sets of data. It is based on the frequency of occurrence of the digits '1' through '9' of the first significant digit of data values. A chi-square or similar frequency test is usually used. An alternative to the usual statistical methodology of digitally analyzing data for conformance with Benford's law is presented. This method is based on the more basic phenomenon underlying the frequency of the first digit, and thus is more robust and powerful. This method has a firm basis in statistical theory; critical values can be precisely determined. Other concomitant issues concerning Benford's law are also examined.

Keywords: Benford's law, digital analysis, circular data analysis, conformance testing

JEL Classification: C12