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A Chaotic Approach to Market Dynamics

Author

Listed:
  • Carmen Pellicer-Lostao
  • Ricardo Lopez-Ruiz

Abstract

Economy is demanding new models, able to understand and predict the evolution of markets. To this respect, Econophysics is offering models of markets as complex systems, such as the gas-like model, able to predict money distributions observed in real economies. However, this model reveals some technical hitches to explain the power law (Pareto) distribution, observed in individuals with high incomes. Here, non linear dynamics is introduced in the gas-like model. The results obtained demonstrate that a chaotic gas-like model can reproduce the two money distributions observed in real economies (Exponential and Pareto). Moreover, it is able to control the transition between them. This may give some insight of the micro-level causes that originate unfair distributions of money in a global society. Ultimately, the chaotic model makes obvious the inherent instability of asymmetric scenarios, where sinks of wealth appear in the market and doom it to complete inequality.

Suggested Citation

  • Carmen Pellicer-Lostao & Ricardo Lopez-Ruiz, 2010. "A Chaotic Approach to Market Dynamics," Papers 1008.0758, arXiv.org.
    • Handle: RePEc:arx:papers:1008.0758
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    References listed on IDEAS

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    1. J. Doyne Farmer & Duncan Foley, 2009. "The economy needs agent-based modelling," Nature, Nature, vol. 460(7256), pages 685-686, August.
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