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Benford鈥檚 law Faked numbers in tax returns, invoices, or expense account claims often display patterns that aren鈥檛 present in legitimate records. Some patterns, like too many round numbers, are obvious and easily avoided by a clever crook. Others are more subtle. It is a striking fact that the first digits of numbers in legitimate records often follow a model known as Benford鈥檚 law. Call the first digit of a randomly chosen record Xfor short. Benford鈥檚 law gives this probability model forX(note that a first digit can鈥檛 be 0)

(a) Show that this is a legitimate probability distribution.

(b) Make a histogram of the probability distribution. Describe what you see.

(c) Describe the event X6in words. What is P(X6)?

(d) Express the event 鈥渇irst digit is at most 5鈥 in terms of X. What is the probability of this event?

Short Answer

Expert verified

a) The probability range from 0to 1.

b)

c) As a result, 0.222is the required probability.

d) As a result, 0.778is the required probability.

Step by step solution

01

Part(a) Step 1: Given Information

Given that,

02

Part(a) Step 2: Explanation

Calculate the probability sum as follows:

Sum of probabilities

=0.301+0.176+.+0.046=1

The probability range from 0 to 1, and the sum of the probabilities equals 1. As a result, the probability distribution supplied is a valid probability distribution.

03

Part(b) Step 1: Given Information

Given that,

04

Part(b) Step 2: Explanation

The graph might be made as follows:

The graph's right side contains the majority of the data. As a result, the distribution is slanted right.

05

Part(c) Step 1: Given Information

Given that,

To explain: The X6. Calculate the P(X6) as well.

06

Part(c) Step 2: Explanation

6or more digits are implied by X6. It simply signifies that there are at least six digits.

P(X6)may be determined using the following formula:

P(X6)=P(X=6)+P(X=7)+P(X=8)+P(X=9)=0.067+0.058+0.051+0.046=0.222

07

Part(d) Step 2: Given Information

Given that,

08

Part(d) Step 2: Explanation

In terms of X, the event "first digit is at most 5" may be expressed as X5. P(X5)can be computed as:

P(X5)=P(X=1)+P(X=2)+.........+P(X=5)=0.301+0.176+........+0.079=0.778

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Most popular questions from this chapter

77. Blood types Refer to Exercise 75. How surprising would it be to get more than 4 adults with type O blood in the sample? Calculate an appropriate probability to support your answer.

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(a) Calculate the standard deviation 蟽Y. This gives us an idea of how much variation we鈥檇 expect in the employee鈥檚 expense records if he assumed that first digits from 1 to 9 were equally likely.

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14. . Life insurance A life insurance company sells a term insurance policy to a 21-year-old male that pays \(100,000if the insured dies within the next 5years. The probability that a randomly chosen male will die each year can be found in mortality tables. The company collects a premium of \)250each year a payment for the insurance. The amount Ythat the company earns on this policy is \(250per year, less the \)100,000that it must pay if the insured dies. Here is a partially completed table that shows information about risk of mortality and the values of Y=profit earned by the company:

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