The optimal amount of fraud is non-zero (2022) • Hacker News Board

Re: The optimal amount of fraud is non-zero (2022)

#31

Post by mlyle » Mon, Jan 08, 2024, 12:42 AM UTC

aidenn0 wrote: post #20

yreg wrote: post #15

Earlier quoted context omitted.

Is it unintuitive? The concept of diminishing returns applies to everything any living thing does. I think it's very natural, even in the 'our brains are wired for this' sense.

Yes, it's counterintuitive to many people that "the optimal amount of $BAD_THING is non-zero" for a rather large set of possible values for BAD_THING. "You can't put a price on human life" is one common occurrence of this. I thought it was just a throwaway phrase, or a wish of how things could be, but I've regularly run into people who don't understand why we would ever fail to spend absurdly large amounts of money t…

Well, the optimal quantity for many things is actually zero.

It's the edge cases-- the things where it's really hard to get rid of and we get some useful benefit from the related activity-- where it's nonzero.

Of course, those edge cases are our biggest world problems-- for example, pollution, because pollution abatement is hard and the industry and commerce that produces pollution is beneficial... or fraud, because fraud protection is hard and the industry and commerce that provides opportunity for fraud is beneficial.

Re: The optimal amount of fraud is non-zero (2022)

#32

Post by russelg » Mon, Jan 08, 2024, 12:43 AM UTC

brazzy wrote: post #4

karmakurtisaani wrote: post #2

To summarize: there is a trade-off between amount of fraud and ease of doing business. Zero fraud means doing legitimate business becomes too cumbersome. Seems like the same point we have with security in computer systems and ease of use.

Important corollary: it may well be possible to reduce fraud much closer to zero (then the currently accepted rate) without negative effects on legitimate business. For example, the USA's lack of a national ID (and the resulting adoption of realldy ba substitues like SSNs, driver's licenses and "two photo IDs") has made a plethora of fraud techniques ridiculously easy. In many other countries, "identity theft" so rar…

In Australia, drivers licenses and passports are defacto national IDs. And we felt the sting of that when Optus (2nd largest telecom provider) leaked half of the population's IDs.

Not to mention before this there was almost no way to get a new drivers license number, so if it got stolen good luck, a new license is issued under the same number.

Re: The optimal amount of fraud is non-zero (2022)

#33

Post by mlyle » Mon, Jan 08, 2024, 12:50 AM UTC

GuB-42 wrote: post #16

Just like everything. The optimal amount of crime, unemployment, accidents, deaths, etc... is not zero. For example, when building a road, there is a certain chance that an accident will happen, that some people will die, and that could have been prevented. For example, by installing a guard rail, enforcing speed limits, or by taking a different path. But installing that guard rail for a one in a million chance that…

> But installing that guard rail for a one in a million chance that something bad happens is money better spent elsewhere

Just for clarity -- guard rails, where we choose to place them, probably cost $500k to $2M per life saved over their lifetime, while the value of a statistical life in the US is >$10M. This comparison ignores costs of non-fatal outcomes (injuries, disability).

It seems like we should be deploying more guardrails, even though their marginal return would be less than our current average.

Re: The optimal amount of fraud is non-zero (2022)

#34

Post by irjustin » Mon, Jan 08, 2024, 12:53 AM UTC

yreg wrote: post #15

tptacek wrote: post #13

Earlier quoted context omitted.

It's very unintuitive. It's come up on threads here several times, with people incredulous about the statement. It has ramifications for the kinds of discussions we have on HN, because the primary stimuli we get are news anecdotes, and anecdotes about fraud can be galling but still under some sane noise floor that organizations don't bother to stop.

Is it unintuitive? The concept of diminishing returns applies to everything any living thing does. I think it's very natural, even in the 'our brains are wired for this' sense.

> Is it unintuitive?

Yes when we look at it from both an individual level and a societal level. There's a very very strong aversion to loss and many decisions (including my own) are based on the concept of not losing something. Many times these decisions lead to making decisions that are sub-optimal (for the thing that's being optimized for).

By extension, many people apply this thinking to businesses and higher levels as well.

Re: The optimal amount of fraud is non-zero (2022)

#35

Post by gwern » Mon, Jan 08, 2024, 12:57 AM UTC

GuB-42 wrote: post #16

Just like everything. The optimal amount of crime, unemployment, accidents, deaths, etc... is not zero. For example, when building a road, there is a certain chance that an accident will happen, that some people will die, and that could have been prevented. For example, by installing a guard rail, enforcing speed limits, or by taking a different path. But installing that guard rail for a one in a million chance that…

End-to-end principle in action. You could try to make every stage super-reliable and fraudproof... but that yields a terrible overall system compared to a much lighter touch and going after complete transactions which turn out bad.

Re: The optimal amount of fraud is non-zero (2022)

#36

Post by borissk » Mon, Jan 08, 2024, 1:01 AM UTC

A problem that a social credit system can mostly solve - just don't do business with people with low social score :)

Re: The optimal amount of fraud is non-zero (2022)

#37

Post by theptip » Mon, Jan 08, 2024, 1:02 AM UTC

yreg wrote: post #10

I believe this is a trivial thing with a misleading title. Of course the optimal amount of fraud for a business is zero. A world with zero fraud would be optimal for them. And (also of course) given that combating fraud has costs, there is a level at which investing more money and effort into anti-fraud has diminishing returns. Therefore it is not worth it to go all in into the fight against fraud, but accept that so…

> Of course the optimal amount of fraud for a business is zero.

Only if the business doesn’t have to pay to avert fraud.

> A world with zero fraud would be optimal for them.

You are misunderstanding the statement. We are not imagining which hypothetical world we wish to live in. We are making a claim about fraud levels in this world and how they feed into profits.

In this world, every reduction in fraud costs money or time or opportunity. Therefore, optimizing your profit means choosing a non-zero (often higher than you’d think) level of fraud.

Re: The optimal amount of fraud is non-zero (2022)

#38

Post by [deleted] » Mon, Jan 08, 2024, 1:03 AM UTC

yreg wrote: post #10

I believe this is a trivial thing with a misleading title. Of course the optimal amount of fraud for a business is zero. A world with zero fraud would be optimal for them. And (also of course) given that combating fraud has costs, there is a level at which investing more money and effort into anti-fraud has diminishing returns. Therefore it is not worth it to go all in into the fight against fraud, but accept that so…

[deleted]

Re: The optimal amount of fraud is non-zero (2022)

#39

Post by jvanderbot » Mon, Jan 08, 2024, 1:07 AM UTC

tptacek wrote: post #13

yreg wrote: post #10

I believe this is a trivial thing with a misleading title. Of course the optimal amount of fraud for a business is zero. A world with zero fraud would be optimal for them. And (also of course) given that combating fraud has costs, there is a level at which investing more money and effort into anti-fraud has diminishing returns. Therefore it is not worth it to go all in into the fight against fraud, but accept that so…

It's very unintuitive. It's come up on threads here several times, with people incredulous about the statement. It has ramifications for the kinds of discussions we have on HN, because the primary stimuli we get are news anecdotes, and anecdotes about fraud can be galling but still under some sane noise floor that organizations don't bother to stop.

The optimal admount of fraud attempts is zero. Given that's impossible, one should not attempt to eradicate fraud or else you'll do nothing but seek it out.

Re: The optimal amount of fraud is non-zero (2022)

#40

Post by jacquesm » Mon, Jan 08, 2024, 1:07 AM UTC

tptacek wrote: post #18

yreg wrote: post #15

Earlier quoted context omitted.

Is it unintuitive? The concept of diminishing returns applies to everything any living thing does. I think it's very natural, even in the 'our brains are wired for this' sense.

It is unintuitive. It hits some primal part our brain, the same as is isolated in that capuchin monkey experiment where two monkeys get varying levels of grapes. People get either really excited or really pissed off when they see people getting away with something; at the same time, when we read stories about bureaucracy --- a perennial bête noire on HN --- we rarely think in terms of the fraud we should be accepting…

I think it is in part rooted in the difference between committing fraud and detecting that there is fraud. They're entirely different things and the misunderstanding results from the fact that. It is indeed very interesting how deeply hardwired this sort of thing is.