- The optimal amount of fraud a business/industry should accept is non-zero
The simple observation that the cost to prevent each marginal fraud attempt increases; the last 0.1% of fraud costs way too much to prevent compared to the first 99%. Obviously society would be better off if fraud didn't exist, but since it does the effort expended is only worth it up until when the marginal cost of prevention exceeds an acceptable threshold (when it starts to lose you money).
The optimal amount of fraud is still 0, but the optimal amount of fraud prevention lies somewhere on the margin.
This is why important transactions like banking have KYC checks, and buying a pair of sneakers don't.
- The optimal amount of fraud in society is 0
- The optimal amount of fraud a business/industry should accept is non-zero
The simple observation that the cost to prevent each marginal fraud attempt increases; the last 0.1% of fraud costs way too much to prevent compared to the first 99%. Obviously society would be better off if fraud didn't exist, but since it does the effort expended is only worth it up until when the marginal cost of prevention exceeds an acceptable threshold (when it starts to lose you money).
The optimal amount of fraud is still 0, but the optimal amount of fraud prevention lies somewhere on the margin.
This is why important transactions like banking have KYC checks, and buying a pair of sneakers don't.