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Transition from Exponential to Power Law Distributions in a Chaotic Market


  • Carmen Pellicer-Lostao
  • Ricardo Lopez-Ruiz


Economy is demanding new models, able to understand and predict the evolution of markets. To this respect, Econophysics offers models of markets as complex systems, that try to comprehend macro-, system-wide states of the economy from the interaction of many agents at micro-level. One of these models is the gas-like model for trading markets. This tries to predict money distributions in closed economies and quite simply, obtains the ones observed in real economies. However, it reveals technical hitches to explain the power law distribution, observed in individuals with high incomes. In this work, non linear dynamics is introduced in the gas-like model in way that an effort to overcome these flaws. A particular chaotic dynamics is used to break the pairing symmetry of agents $(i,j)\Leftrightarrow(j,i)$. The results demonstrate that a "chaotic gas-like model" can reproduce the Exponential and Power law distributions observed in real economies. Moreover, it controls 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 and doom the market to extreme inequality.

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  • Carmen Pellicer-Lostao & Ricardo Lopez-Ruiz, 2010. "Transition from Exponential to Power Law Distributions in a Chaotic Market," Papers 1011.5187,
  • Handle: RePEc:arx:papers:1011.5187

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    References listed on IDEAS

    1. Sinha, Sitabhra, 2006. "Evidence for power-law tail of the wealth distribution in India," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 359(C), pages 555-562.
    2. A. Corcos & J-P Eckmann & A. Malaspinas & Y. Malevergne & D. Sornette, 2002. "Imitation and contrarian behaviour: hyperbolic bubbles, crashes and chaos," Quantitative Finance, Taylor & Francis Journals, vol. 2(4), pages 264-281.
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