> So, if we saw the kinds of initial digits that your hypothetical produces, we would be correct to guess that this stock is behaving in an unusual way. Sure

> So, if we saw the kinds of initial digits that your hypothetical produces, we would be correct to guess that this stock is behaving in an unusual way. Sure > And it would be a correct application of Benford's Law, because we can reasonably expect that its key assumptions apply. No, absolutely not. The fact that Benford's law would trigger on that one example is not evidence that using Benford's law in this situation is actually a reasonable thing to do. Applying Benford's law to observations over time from a highly correlated time series (e.g. a stock price over time) is fundamentally different from applying Benford's law to a bunch of observations from different time series at a single point in time (e.g. the NYSE prices in the first figure from the original post). As I pointed out in my comment above, applying Benford's law to the single time series must be justified by an ergodicity argument which nobody has attempted to make. I don't know if Smith has any background in stochastic processes, but given Gelman's work on MCMC convergence (which deals with similar issues) he should have flagged that. > It turns out that red flags are useful even when they're not admissible in court, because they provide an easy heuristic that you can use to help direct your search for more compelling evidence. No. A "red flag" like this with no theoretical justification and unknown operating characteristics is a good way to get led down false paths. About the only thing it's good for is confirmation bias.