Forensic Economics

In many aspects of life, people have incentives to conceal their behaviour, especially when the behaviour in question is unethical or illegal. The field of forensic economics seeks to apply economic and statistical theory in order to detect the existence of "hidden behaviours" to which people will not readily admit. Examples include teachers cheating on exams, road builders skimping on materials, violations of UN sanctions, unnecessary heart surgeries, and racial biases in employment decisions, traffic stops, auto retailing and even sports judging. In each case, part of the contribution of economic analysis is in uncovering evidence of wrongdoing. Although research questions differ, forensic economic work shares commonalities in approaches and limitations.

In a coming series of lectures at CES, where he will be staying until early May, Eric Zitzewitz will present an overview of his recent findings in the field of forensic economics, where he is one of the leading scholars.

There are many different methodologies that he employs to detect hidden behaviour. One strategy is to compare two different data sources that should theoretically provide the same data. For example, in one paper, Mr Zitzewitz compared snowfall reports by government weather stations and ski resorts. The resorts consistently report higher snowfall. Moreover, the difference between snow reports from resorts and government weather stations becomes larger during weekends, particularly at resorts that cater to experts or that are within driving distance of a major city. This seems to suggest that ski resorts are more likely to over-report snowfall when the benefits of doing so are higher.

Mr Zitzewitz has edited a recent issue on “Forensic Economics” for The Journal of Economics (2012, 50/3,731–69). His overall research interests are agency problems and incentives, particularly in financial and information industries as well as market-based prediction and forecasting

Eric Zitzewitz is Associate Professor of Economics (with tenure) at Dartmouth College. From 2001 to 2007 he served as Assistant Professor of Economics at Stanford Graduate School of Business, and from 1993 to 1997 he was Economics and Business Analyst for McKinsey & Co. His PhD in Economics is from MIT; he holds an AB in Economics from Harvard.