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Colloquium: Statistical Mechanics of Money, Wealth, and Income

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Victor M. Yakovenko
J. Barkley Rosser

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Abstract

The paper reviews statistical models for money, wealth, and income distributions developed in the econophysics literature since the late 1990s. By analogy with the Boltzmann-Gibbs distribution of energy in physics, it is shown that the probability distribution of money is exponential for certain classes of models with interacting economic agents. Alternative scenarios are also reviewed. Data analysis of the empirical distributions of wealth and income reveals a two-class distribution. The majority of the population belongs to the lower class, characterized by the exponential ("thermal") distribution, whereas a small fraction of the population in the upper class is characterized by the power-law ("superthermal") distribution. The lower part is very stable, stationary in time, whereas the upper part is highly dynamical and out of equilibrium.

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File URL: http://arxiv.org/abs/0905.1518
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Paper provided by arXiv.org in its series Quantitative Finance Papers with number 0905.1518.

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Date of creation: May 2009
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Handle: RePEc:arx:papers:0905.1518

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  1. Lux, Thomas & Sornette, Didier, 2002. "On Rational Bubbles and Fat Tails," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 589-610, August.
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  2. Jean-Philippe Bouchaud & Marc Mezard, 2000. "Wealth condensation in a simple model of economy," Science & Finance (CFM) working paper archive 500026, Science & Finance, Capital Fund Management. [Downloadable!]
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  5. Arnab Das & Sudhakar Yarlagadda, 2004. "An analytic treatment of the Gibbs-Pareto behavior in wealth distribution," Quantitative Finance Papers cond-mat/0409329, arXiv.org, revised Mar 2005. [Downloadable!]
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  7. Smith, Eric & Foley, Duncan K., 2008. "Classical thermodynamics and economic general equilibrium theory," Journal of Economic Dynamics and Control, Elsevier, vol. 32(1), pages 7-65, January. [Downloadable!] (restricted)
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  10. E. Samanidou & E. Zschischang & D. Stauffer & T. Lux, 2007. "Agent-based Models of Financial Markets," Quantitative Finance Papers physics/0701140, arXiv.org. [Downloadable!]
  11. Arnab Chatterjee & Bikas K. Chakrabarti, 2007. "Kinetic Exchange Models for Income and Wealth Distributions," Quantitative Finance Papers 0709.1543, arXiv.org, revised Nov 2007. [Downloadable!]
  12. Dieter Braun, 2006. "Nonequilibrium Thermodynamics of Wealth Condensation," Quantitative Finance Papers physics/0601191, arXiv.org. [Downloadable!]
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  23. Anirban Chakraborti & Bikas K. Chakrabarti, 2000. "Statistical mechanics of money: How saving propensity affects its distribution," Quantitative Finance Papers cond-mat/0004256, arXiv.org, revised Jun 2000. [Downloadable!]
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