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

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

#41

Post by akerl_ »

theptip wrote: post #37
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 o…

Yea; I think this is one of the times where terms of art matter. "Optimal" here doesn't mean like "It would be optimal for me if I had infinite money", it's a term of art in fields like economics that describes the best case of the available variables.

This is how we end up going back and forth between "the optimal amount of fraud is non-zero" and "it would be optimal to have no fraud". Economics has to live with the world that exists, and there is no plausible combo of variables where people who are about to attempt fraud are instantly evaporated into dust.

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

#42

Post by kevindamm »

mlyle wrote: post #33
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…

The problem the article poses is actually not one of diverting costs, despite how GP's metaphor would indicate... It's that with fraud, only the most draconian systems can be effective at stopping all fraud.

In the above metaphor, it's more like guard rails are already in place, the speed limit is 1/10th a reasonably safe velocity, and the only way you can stop the remaining death-every-decade is to make everyone walk the road instead of driving it, and guarded so that you don't encounter any strangers along the way either. Very safe. But now nobody even wants to take this road. But it's so safe! Zero deaths, no injuries, ever.

Sure, the expenses/value argument can be made, too, but that's not ultimately what makes it nonzero. Even if you had limitless resources to apply to the anti-fraud, the only way you're getting nonzero fraud is if a large amount of legitimate customers are inconvenienced or outright denied as well. This is due to how easily fraudsters can still find processes and marks to make it worth their time, and regulations + policies are ever evolving to keep up, but a lot of it comes down to a cost/benefit analysis by the business. The internet just scales this up by several orders of magnitude too.

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

#43

Post by aaron695 »

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…

[dead]

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

#44

Post by jongjong »

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…

I agree. It's a self-serving failure of the imagination to believe that fraud and usability are intertwined. My issue with this kind of big corporate thinking is that it's often rooted in neglect and it harms real people by the millions.

Also, it fails to consider that corporations (or any entity which operates at the kind of scale suggested by the author) may not be optimal economic constructs for a society to begin with. Society worked fine before corporations and arguably was far more efficient given technological shortcomings. Think of how much human time was wasted on data entry, physically searching for documents in large archives, travelling between home and work on foot or by horse, doing accounting with pen and paper, manual farming, primitive irrigation systems, no synthetic fertilizer, etc, etc... Now that we've freed up people from all that work, how come everyone is busier than ever and yet there are so many poor people?

I think it doesn't make sense to look at our modern economic system as a model of efficiency, instead, I think it should be studied as a model of economic parasitism.

We shouldn't conflate efficiency driven by technology with other aspects of the socio-economic system which are canceling out much of that efficiency.

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

#45

Post by mlyle »

kevindamm wrote: post #42
mlyle wrote: post #33

Earlier quoted context omitted.

> 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…

The problem the article poses is actually not one of diverting costs, despite how GP's metaphor would indicate... It's that with fraud, only the most draconian systems can be effective at stopping all fraud. In the above metaphor, it's more like guard rails are already in place, the speed limit is 1/10th a reasonably safe velocity, and the only way you can stop the remaining death-every-decade is to make everyone wal…

Sure, I was commenting just on guard rails. If you want to know what I think about the topic of the article, my earlier comment is more informative.

https://news.ycombinator.com/item?id=38906842

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

#46

Post by nitin-pai »

A lot of the confusion and anxiety will melt away if we distinguish the terms “optimal” and “desirable”.

The most desirable amount of fraud, corruption or tax evasion is zero.

In the real world we don’t get what we desire. The closest we can came is to the optimal amount, where the marginal cost has to equal the marginal benefit.

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

#47

Post by aidenn0 »

redeeman wrote: post #26
aidenn0 wrote: post #20

Earlier quoted context omitted.

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…

because they somehow have this idea that they own the rights to control others. Once you consider that you can force others to do anything, regardless of reason, you can begin to rationalize anything, and it will be "for the greater good" or "for their own good". They probably even sincerely mean it too. some kind of bald man once quoted someone: "With the first link, a chain is forged..."

> Once you consider that you can force others to do anything, regardless of reason, you can begin to rationalize anything, and it will be "for the greater good" or "for their own good". They probably even sincerely mean it too.

Eh, I know lots of people who are neither anarchists nor totalitarians, so I'm not sure this is true.

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

#48

Post by COAGULOPATH »

This reminds me of Matt Lakeman's "An Attempt at Explaining, Blaming, and Being Very Slightly Sympathetic Toward Enron"

https://mattlakeman.org/2020/04/27/explaining-blaming-and-be...

He makes the point that although Enron was clearly doing shady things, it's possible for a legitimate business to do many of the same stuff ("mark-to-market" accounting, tricky SPEs, and so on). Try to categorically eliminate Enron-style fraud and you might take down the next Google in the crossfire.

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

#49

Post by pembrook »

Spunkie wrote: post #7

Anti-fraud departments have apparently not gotten the memo, and the whole situation has gotten obscene in the last few years. I regularly travel for work and it's impossible for me to make any purchases on major sites like Walmart, Best Buy, Target, Costco, etc. They all will accept an order, charge my card, and then randomly cancel the order some hours to days later, and refund me. Similarly when traveling internati…

Ditto to this. My experience has been very similar to yours.

The amount of incompetence involved with payment processing and banking is just mind boggling. KYC/AML is very quickly turning into bizarro big brother. But not an all-knowing AI big brother. A stupid 2005-era IP address detecting one. You do a little too much traveling? Poof. There goes a month of your life to banking jail.

A simple two-factor mechanism like passkeys or authy (that isn’t based on SMS to unreliable US phone carriers) would solve about 99.999% of this.

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

#50

Post by fragmede »

yreg wrote: post #24
abtinf wrote: post #17

Earlier quoted context omitted.

The optimal amount of airline catastrophes is non-zero. The optimal amount of pollution is non-zero. The optimal amount of [insert almost anything bad] is non-zero.

Again this is totally misleading. The optimal amount of airline catastrophes is zero. It is also impossible. Should all humans spend all of their effort and all of their resources to lower the amount of airline catastrophes? I believe that pretty much everyone finds it reasonable to say no.

Why is that zero? I don't want to die in a plane any more than the next person, but is zero really optimal? It's least life losing, it's least catastrophic, but is it optimal? the question becomes, what are we optimizing for? If the optimization equation is for lives lost, I can make that zero real easily by just stopping air travel entirely. If no one travels by air, then no one can die by air. But of course that's not a useful solution at all. So we're not optimizing for lives not lost. We're optimizing for people being able to travel. Loss of life is tragic, but not the be all-end all. The gross reality that we don't want to face is that there's a price for a human life, the only question is how much?

Would you take a $10 10,000 mile flight across the world with a 1% chance of dying? How about a $100 flight with a .1% chance of dying?

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