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Finite market size as a source of extreme wealth inequality and market instability

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  • Zhi-Feng Huang
  • Sorin Solomon

Abstract

We study the finite-size effects in some scaling systems, and show that the finite number of agents N leads to a cut-off in the upper value of the Pareto law for the relative individual wealth. The exponent $\alpha$ of the Pareto law obtained in stochastic multiplicative market models is crucially affected by the fact that N is always finite in real systems. We show that any finite value of N leads to properties which can differ crucially from the naive theoretical results obtained by assuming an infinite N. In particular, finite N may cause in the absence of an appropriate social policy extreme wealth inequality $\alpha

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File URL: http://arxiv.org/pdf/cond-mat/0103170
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Bibliographic Info

Paper provided by arXiv.org in its series Papers with number cond-mat/0103170.

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Date of creation: Mar 2001
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Publication status: Published in Physica A 294, 503-513 (2001)
Handle: RePEc:arx:papers:cond-mat/0103170

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Web page: http://arxiv.org/

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Cited by:
  1. Marco Airoldi & Vito Antonelli & Bruno Bassetti & Andrea Martinelli & Marco Picariello, 2004. "Long Range Interaction Generating Fat-Tails in Finance," GE, Growth, Math methods 0404006, EconWPA, revised 27 Apr 2004.
  2. A. Corcos & J. -P. Eckmann & A. Malaspinas & Y. Malevergne & D. Sornette, 2001. "Imitation and contrarian behavior: hyperbolic bubbles, crashes and chaos," Papers cond-mat/0109410, arXiv.org.
  3. Marco Raberto & Silvano Cincott & Sergio M. Focardi & Michele Marchesi, 2002. "Traders’ long-run wealth in an artificial financial market," Computing in Economics and Finance 2002 301, Society for Computational Economics.
  4. Sorin Solomon & Natasa Golo, 2014. "Microeconomic Structure determines Macroeconomic Dynamics. Aoki defeats the Representative Agent," Papers 1401.7496, arXiv.org.

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