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Emergence of power-law in a market with mixed models

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  • Ali Saif, M.
  • Gade, Prashant M.
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    Abstract

    We investigate the problem of wealth distribution from the viewpoint of asset exchange. Robust nature of Pareto's law across economies, ideologies and nations suggests that this could be an outcome of trading strategies. However, the simple asset exchange models fail to reproduce this feature. A Yardsale (YS) model in which amount put on the bet is a fraction of minimum of the two players leads to condensation of wealth in hands of some agent while theft and fraud (TF) model in which the amount to be exchanged is a fraction of loser's wealth leads to an exponential distribution of wealth. We show that if we allow few agents to follow a different model than others, i.e., there are some agents following TF model while rest follow YS model, it leads to distribution with power-law tails. Similar effect is observed when one carries out transactions for a fraction of one's wealth using TF model and for the rest YS model is used. We also observe a power-law tail in wealth distribution if we allow the agents to follow either of the models with some probability.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378437107002981
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    Bibliographic Info

    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 384 (2007)
    Issue (Month): 2 ()
    Pages: 448-456

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    Handle: RePEc:eee:phsmap:v:384:y:2007:i:2:p:448-456

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    Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

    Related research

    Keywords: Pareto law; Wealth distribution; Econophysics;

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    Cited by:
    1. Victor M. Yakovenko & J. Barkley Rosser, 2009. "Colloquium: Statistical mechanics of money, wealth, and income," Papers 0905.1518, arXiv.org, revised Dec 2009.
    2. Sokolov, Andrey & Melatos, Andrew & Kieu, Tien, 2010. "Laplace transform analysis of a multiplicative asset transfer model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(14), pages 2782-2792.

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