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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)

#71

Post by NegativeLatency »

teh_infallible wrote: post #70
pembrook wrote: post #49

Earlier quoted context omitted.

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 li…

[flagged]

The dislike is not from the technology itself, but from its current applications and 2nd order effects. Most of which currently have not been great.

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

#72

Post by eviks »

> This is counterintuitive and sounds like it is trying a bit too hard to be clever. You should believe it.

Yes, you're

> you should welcome greater than zero fraud. You can think of it as a necessary expense, just like rent or salary or advertising is.

You don't WELCOME costs just because they're necessary. Similarly, you wouldn't welcome fraud just because it's too costly to get rid of it.

And if you add a tiny bit of morality into the mix, your too clever "fraud welcome!" message becomes even more invisible

(also, it could very well be that some fraud types can be reduced to literal 0 without bringing the whole system down, but then the parts of the system that can make it happen aren't incentivized to do so because they've passed all the costs to other parts of the system)

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

#73

Post by tgv »

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…

> The optimal amount of [...] deaths [...] is not zero.

That's not true. It assumes that there is an objective, known price for a life. Since you can't have e.g. 0.1 deaths, there's no guarantee that the optimal amount is at least 1. It's more that it's the outcome of haggling, politics, and the willingness to turn a blind eye to the consequences of stupidity.

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

#74

Post by w10-1 »

For the theoretical background, see Ronald Coase on Transaction Cost Economics.

The law can place liability anywhere. In a situation where transaction costs are zero, it doesn't actually matter where liability is placed, because the participants will contract in the most economically efficient manner to share the burden.

That means liability choices can reduce to reducing transaction costs. For credit, the $50 is to avoid the adverse incentive of the cardholder permitting fraud, but otherwise the cost and mitigation is better shared among the big players at scale that reduces overhead. (Conversely, shifting liability via forced arbitration and legal disclaimers monetizes market power.)

As a policy matter, ask yourself: so why then do debit cards not come with the same limitation of fraud liability to $50, since the same economies of scale apply?

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

#75

Post by mgoetzke »

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…

Same here. While in a Nike Store in London, I could not use my Barclaycard for a 50 EUR purchase. So unheard of to use a Mastercard for purchasing something while on vacation. Used a different card which worked fine.

No SMS or notification on my phone to verify myself either.

Wrote them a mail to ask what this was about and why I cannot use my card, but they only wrote back that the card was not blocked and everything was fine, but sometimes they are afraid of fraud etc.

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

#76

Post by concordDance »

tgv wrote: post #73
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…

> The optimal amount of [...] deaths [...] is not zero. That's not true. It assumes that there is an objective, known price for a life. Since you can't have e.g. 0.1 deaths, there's no guarantee that the optimal amount is at least 1. It's more that it's the outcome of haggling, politics, and the willingness to turn a blind eye to the consequences of stupidity.

There's a price for life in a given society though. Due to resources being finite and wellbeing mattering. In the UK I believe NICE uses £30k/QALY as the price.

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

#77

Post by davidkretch »

A similar insight from economist Daniel Davies from 2005:

>> The optimal frequency of disasters is not zero. This graceful formulation is due to Prof. Richard Portes, who used to say it about emerging market financial crises. However, it’s a fundamental principle of risk management and one of entirely general application. Most dangers can be absolutely eliminated for all practical purposes, but only at unacceptable cost.

https://blog.danieldavies.com/2005/07/?m=1

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

#78

Post by concordDance »

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…

I would like to emphasise that the parent has said "where we choose to place them", so they're not contradicting the grandparents metaphor, just giving an interesting FYI.

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

#79

Post by judikidd »

teh_infallible wrote: post #70
pembrook wrote: post #49

Earlier quoted context omitted.

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 li…

[flagged]

Famously user friendly crypto.

Where nobody ever loses access to their assets in perpetuity.

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

#80

Post by hannob »

teh_infallible wrote: post #70
pembrook wrote: post #49

Earlier quoted context omitted.

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 li…

[flagged]

Yeah, sure. I mean "we don't do fraud detection, it's literally one of our design decisions that you can't do anything after fraud has happened, and also, fraud is kinda in our DNA" systems are totally well suited to solve that.
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