Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2010-03-10 Number: 10-030/4 Author-Name: Bahar Kaynar Author-Workplace-Name: VU University Amsterdam Author-Name: Arno Berger Author-Workplace-Name: University of Alberta, Canada Author-Name: Theodore P. Hill Author-Workplace-Name: Georgia Institute of Technology, USA Author-Name: Ad Ridder Author-Workplace-Name: VU University Amsterdam Title: Finite-State Markov Chains obey Benford's Law Abstract: This discussion paper resulted in a publication in the Siam Journal on Matrix Analysis and Applications (2011). Volume 32, issue 3, pages 665-684.
A sequence of real numbers (xn) is Benford if the significands, i.e. the fractionparts in the floating-point representation of (xn), are distributed logarithmically.Similarly, a discrete-time irreducible and aperiodic finite-state Markov chain withprobability transition matrix P and limiting matrix P* is Benford if every componentof both sequences of matrices (Pn − P*) and (Pn+1 − Pn) is Benford oreventually zero. Using recent tools that established Benford behavior both forNewton's method and for finite-dimensional linear maps, via the classical theoriesof uniform distribution modulo 1 and Perron-Frobenius, this paper derives asimple sufficient condition ('nonresonance') guaranteeing that P, or the Markovchain associated with it, is Benford. This result in turn is used to show thatalmost all Markov chains are Benford, in the sense that if the transition probabilitiesare chosen independently and continuously, then the resulting Markovchain is Benford with probability one. Concrete examples illustrate the variouscases that arise, and the theory is complemented with several simulations andpotential applications. Classification-JEL: C02, C65 Keywords: Markov chain, Benford's Law, uniform distribution modulo 1, significant digits, significand, n-step, transition probabilities, stationary distribution File-Url: http://papers.tinbergen.nl/10030.pdf File-Format: application/pdf File-Size: 275110 bytes Handle: RePEc:tin:wpaper:20100030