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 some amount of it happens.
Surely none of this is surprising.
It has ramifications for the kinds of discussions we have on HN, because the primary stimuli we get are news anecdotes, and anecdotes about fraud can be galling but still under some sane noise floor that organizations don't bother to stop.
The concept of diminishing returns applies to everything any living thing does. I think it's very natural, even in the 'our brains are wired for this' sense.
The optimal amount of pollution is non-zero.
The optimal amount of [insert almost anything bad] is non-zero.
The ideal amount of anything bad, is zero. But the optimal amount is going to be higher than that, given we don't have unlimited resources to spend.
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.
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?
The optimum is non-zero only if there are enough costs associated with making it zero.
That's why asking for optimum amount of fraud is misleading. It omits the costs. Once the costs are taken into account (i.e. it is clarified what the question means) the answer is obviously above zero.
You are conflating optimum (highest value outcome for all variables) and ideal (highest value outcome for one variable). The ideal number of any bad thing is zero. I can't, off the top of my head, think of any bad thing for which the optimum number is zero. Extinction level events, perhaps.
"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 to save a single life.
I have had people say "Is the only reason we aren't doing something about X money" for various forms of X. I personally spent over an hour walking one such person through the concept of opportunity costs, the fact that money is representative of value, &c. with the conversation ending with them still certain that the US Government could just print a trillion dollars and solve the problem.
I have talked to people who honestly think that every person with depression should be forcibly committed to prevent them from committing suicide and respond to the "but only a fraction of those people have suicidal ideation, and only a fraction of those commit suicide" with a "if it saves just one life, it's worth it!" So forcibly committing 8% of the adult population is not too high a cost in their minds.
some kind of bald man once quoted someone: "With the first link, a chain is forged..."
The flip side, of course, being the folks who believe they somehow have no responsibility for how they use their rights to impact others.
Society can only function with at least some balance between these two extremes. Some of us need a little bit of chain.
Societally, we've largely decided we're all better off without a pile of frozen bodies at our door.
Eh, I know lots of people who are neither anarchists nor totalitarians, so I'm not sure this is true.
"Red cars are more involved in traffic accidents, I therefore think you must be a murderous lunatic if you get a red car, and we cant have that, so lets forbid it"
How much "earth is sterilized" risk is reasonable per year?
It's the edge cases-- the things where it's really hard to get rid of and we get some useful benefit from the related activity-- where it's nonzero.
Of course, those edge cases are our biggest world problems-- for example, pollution, because pollution abatement is hard and the industry and commerce that produces pollution is beneficial... or fraud, because fraud protection is hard and the industry and commerce that provides opportunity for fraud is beneficial.
One of the key factors is that a large part of the cost is opportunity cost. People tend to get all tangled up when thinking about such counterfactuals. We want to have our cake and eat it too. And if we can't, we persist in trying to find ways to believe that we can, and are surprised that the world continues not working that way.
Yes when we look at it from both an individual level and a societal level. There's a very very strong aversion to loss and many decisions (including my own) are based on the concept of not losing something. Many times these decisions lead to making decisions that are sub-optimal (for the thing that's being optimized for).
By extension, many people apply this thinking to businesses and higher levels as well.
Maybe people have gotten worse at intuitively understanding that tradeoffs need to be made in anything, and that the questions that define systems are never choices as much as what the tradeoff should be.
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.
All you can do is try to realize it early and hit the back button before you waste too much time on it.
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 or time or opportunity. Therefore, optimizing your profit means choosing a non-zero (often higher than you’d think) level of fraud.
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.
Then the question should be stated clearly:
"How much effort and resources should be spent to combat fraud?"
The answer is very obviously not "all of the effort and all of the money". Therefore the matter is trivial.