Correlation between risk aversion and wealth distribution
AbstractDifferent models of capital exchange among economic agents have been recently proposed trying to explain the emergence of Pareto's wealth power-law distribution. One important factor to be considered is the existence of risk aversion. In this paper, we study a model where agents possess different levels of risk aversion, going from a uniform to a random distribution. In all cases the risk aversion level for a given agent is constant during the simulation. While for uniform and constant risk aversion the system self-organizes in a distribution that goes from an unfair “one takes all” distribution to a Gaussian one, a random risk aversion can produce distributions going from exponential to log-normal and power-law. Besides, interesting correlations between wealth and risk aversion are found.
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Bibliographic InfoArticle provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.
Volume (Year): 342 (2004)
Issue (Month): 1 ()
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Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/
Econophysics; Wealth distribution; Pareto's law; Risk aversion;
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- Patriarca, Marco & Chakraborti, Anirban & Germano, Guido, 2006. "Influence of saving propensity on the power-law tail of the wealth distribution," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 369(2), pages 723-736.
- Sitabhra Sinha, 2005. "The Rich Are Different!: Pareto Law from asymmetric interactions in asset exchange models," Papers physics/0504197, arXiv.org.
- J. R. Iglesias & R. M. C. de Almeida, 2011. "Entropy and equilibrium state of free market models," Papers 1108.5725, arXiv.org.
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