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The Rich Are Different!: Pareto Law from asymmetric interactions in asset exchange models

  • Sitabhra Sinha

It is known that asset exchange models with symmetric interaction between agents show either a Gibbs/log-normal distribution of assets among the agents or condensation of the entire wealth in the hands of a single agent, depending upon the rules of exchange. Here we explore the effects of introducing asymmetry in the interaction between agents with different amounts of wealth (i.e., the rich behave differently from the poor). This can be implemented in several ways: e.g., (1) in the net amount of wealth that is transferred from one agent to another during an exchange interaction, or (2) the probability of gaining vs. losing a net amount of wealth from an exchange interaction. We propose that, in general, the introduction of asymmetry leads to Pareto-like power law distribution of wealth.

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File URL: http://arxiv.org/pdf/physics/0504197
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Paper provided by arXiv.org in its series Papers with number physics/0504197.

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Date of creation: Apr 2005
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Handle: RePEc:arx:papers:physics/0504197
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  1. Anirban Chakraborti & Bikas K. Chakrabarti, 2000. "Statistical mechanics of money: How saving propensity affects its distribution," Papers cond-mat/0004256, arXiv.org, revised Jun 2000.
  2. Sitabhra Sinha, 2005. "Evidence for Power-law tail of the Wealth Distribution in India," Papers cond-mat/0502166, arXiv.org.
  3. Ning Ding & Yougui Wang, 2005. "Power-Law Distributions in Circulating Money: Effect of Preferential Behavior," Papers physics/0507151, arXiv.org.
  4. Yoshi Fujiwara & Wataru Souma & Hideaki Aoyama & Taisei Kaizoji & Masanao Aoki, 2002. "Growth and Fluctuations of Personal Income," Papers cond-mat/0208398, arXiv.org.
  5. Iglesias, J.R. & Gonçalves, S. & Abramson, G. & Vega, J.L., 2004. "Correlation between risk aversion and wealth distribution," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 342(1), pages 186-192.
  6. 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.
  7. S. Ispolatov & P.L. Krapivsky & S. Redner, 1998. "Wealth distributions in asset exchange models," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 2(2), pages 267-276, March.
  8. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2000. "Do the rich save more?," Finance and Economics Discussion Series 2000-52, Board of Governors of the Federal Reserve System (U.S.).
  9. Arnab Chatterjee & Bikas K. Chakrabarti & S. S. Manna, 2003. "Pareto Law in a Kinetic Model of Market with Random Saving Propensity," Papers cond-mat/0301289, arXiv.org, revised Jan 2004.
  10. Sitabhra Sinha, 2003. "Stochastic Maps, Wealth Distribution in Random Asset Exchange Models and the Marginal Utility of Relative Wealth," Papers cond-mat/0304324, arXiv.org.
  11. A. Chakraborti & B.K. Chakrabarti, 2000. "Statistical mechanics of money: how saving propensity affects its distribution," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 17(1), pages 167-170, September.
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