Wednesday, January 15, 2014

A Cost-Benefit Model for Criminal Behavior

The rational choice theory, commonly relied on in social and economic models, postulates that people are rational decision makers and that in each choice they choose the action that provides them the maximum gain from among all the choices available to them. Thus, human choices boil down to calculated, well-reasoned cost-benefit analyses. J.R. Clark and W.L. Davis, in their 1995 work “A Human Capital Perspective on Criminal Careers”, postulated a cost-benefit formula for explaining criminal behavior. Building on the rational choice theory, the cost-benefit formula essentially states that if the perpetrator’s benefit of committing a certain crime is greater than their cost of committing the crime, then the criminal will commit the crime; otherwise, they will not.

Clark and Davis’s theory provides a good framework evaluating the forces in play in securing assets against threats. Here is their formula in mathematical notation:

Mb + Pb > Ocp + OcmPaPc

The Criminal Benefit –  Mb + Pb
The benefit a person expects to receive from committing a crime is the sum of the expected monetary benefit (Mb) and the expected psychological benefit (Pb). Thus a person will commit a crime if the combination of the two factors yields a value greater than their expected cost of committing the crime. As we’ll demonstrate later, the vast majority of cyber crimes are financially motivated. However, while relatively few, some cyber crimes are psychologically driven.

The Criminal Cost – Ocp + OcmPaPc
The expected total cost of committing a crime is the sum of the cost of actually committing the crime (Ocp) and the cost of legal defense and incarceration (Ocm) factored by the likelihood that the perpetrator will be hauled in to court (Pa) and the likelihood that he will be incarcerated at all in convicted (Pc).

In September 2008 a member of an organized crime group going by the name of Erick Volonski took a job at an Arco gas station in Redondo Beach, CA. Shortly after beginning his employment he planted a card skimmer on the point of sale system. Eight months later Erick disappeared and he and his accomplices began draining money through ATMs from the accounts of thousands of Arco customers. [1]

This is a good example of where the benefit is clearly greater than the cost and the benefit was all monetary.
·      Monetary Benefit (Mb) – High. Using the stolen ATM card data, the perpetrators were able to withdraw at least $300 to $500 at least once form over 1000 accounts.
·      Psychological Benefit (Pb) – Low. There are no indicators that this was a crime of revenge against the station owners. Further, it is unlikely that the criminal suffered much remorse from committing the crime given that on his last day at the station he made off with $1000 in cash, a laptop, and cigarettes along with the data.
·      Cost of Crime Perpetration (Ocp) – Low. In this case, the criminal was actually paid for perpetrating the crime through his employment at the gas station. The hardware used to capture card data is inexpensive and easily obtained.
·      Cost of Legal Defense and Incarceration – Low. The criminal managed his likelihood of being caught well by using fake ids, always walking to work, and never revealing person details. He avoided being photographed except for in one case where he asked the photographer to delete the photo.


Of course, not all criminal behavior is rational. I'll cover that in another post.


[1] http://www.laweekly.com/2009-06-18/news/russian-or-armenian-mob-used-quot-model-employee-quot-con-at-pch-arco/1