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Pareto law in a kinetic model of market with random saving propensity

Author

Listed:
  • Chatterjee, Arnab
  • K. Chakrabarti, Bikas
  • Manna, S.S

Abstract

We have numerically simulated the ideal-gas models of trading markets, where each agent is identified with a gas molecule and each trading as an elastic or money-conserving two-body collision. Unlike in the ideal gas, we introduce (quenched) saving propensity of the agents, distributed widely between the agents (0⩽λ<1). The system remarkably self-organizes to a critical Pareto distribution of money P(m)∼m−(ν+1) with ν≃1. We analyze the robustness (universality) of the distribution in the model. We also argue that although the fractional saving ingredient is a bit unnatural one in the context of gas models, our model is the simplest so far, showing self-organized criticality, and combines two century-old distributions: Gibbs (1901) and Pareto (1897) distributions.

Suggested Citation

  • Chatterjee, Arnab & K. Chakrabarti, Bikas & Manna, S.S, 2004. "Pareto law in a kinetic model of market with random saving propensity," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 335(1), pages 155-163.
  • Handle: RePEc:eee:phsmap:v:335:y:2004:i:1:p:155-163
    DOI: 10.1016/j.physa.2003.11.014
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