Benford’s law applied to sale prices on the Swedish housing market

Sammanfattning: Benford’s law is based on an observation that certain digits occur more often than others in a set of numbers. This have provided researchers to apply the law in different areas including identifying digit patterns and manipulated data. To our knowledge, this have yet not been tested in the Swedish housing market. The purpose of this thesis is to examine whether the sale price for 171 643 tenant-owned apartments in Stockholm, Gothenburg and Malmö follow Benford’s law. Numerous researchers have used this law for testing various types of data but based solely on the first digit distribution of their data. This study will furthermore test the second digit and the first two digits of our data. The tests used to evaluate our data’s conformity to Benford’s law include Kolmogorov-Smirnov test and Mean absolute deviation (MAD) test. We found that the second digit of sale prices did follow Benford’s law, the first digit and the first two digits did not follow the law. The results show that Benford’s law is a good method for identify certain digit patterns and further research is needed to draw the conclusion that sale price does not follow Benford’s law as certain limitations on our data was identified.