EconPapers    
Economics at your fingertips  
 

Should I Stalk or Should I Go? An Auditing Exploration/Exploitation Dilemma

Reda Aboutajdine and Pierre Picard

Working Papers from HAL

Abstract: We consider a fraud inspection problem where service providers are central to the fraud generating process, either as the main protagonists or as colluding third parties. Because interactions are repeated between the auditor (insurer, tax collector , environmental regulation agency, etc.) and auditees (doctors, tax preparers, waste management subcontractors, etc.), auditing behaves as a learning mechanism to separate the wheat (honest agents) from the chaff (defrauders). We analyze a Bayesian inspector's dynamic auditing problem in the face of fraud, and characterize its optimal strategy as a strategic exploration/one-armed bandit one. The insurer faces the well-known reinforcement learning exploration/exploitation trade-off between gathering information for higher future profits (exploration) and prioritizing immediate profits (exploitation). We then derive optimal auditing strategies with multiple auditees and capacity constraints as the solution to a k-armed bandit problem. We finally investigate the extents to which learning occurs under optimality in terms of how much information is obtained and how quickly it is obtained.

Keywords: Fraud; Dynamic optimal auditing; Information acquisition; Armed bandit (search for similar items in EconPapers)
Date: 2019-11-20
New Economics Papers: this item is included in nep-mic
Note: View the original document on HAL open archive server: https://hal.science/hal-02373199
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://hal.science/hal-02373199/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-02373199

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2025-03-22
Handle: RePEc:hal:wpaper:hal-02373199