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

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  • Sitabhra Sinha

Abstract

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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  • Sitabhra Sinha, 2005. "The Rich Are Different!: Pareto Law from asymmetric interactions in asset exchange models," Papers physics/0504197, arXiv.org.
  • Handle: RePEc:arx:papers:physics/0504197
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    7. 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.
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    Cited by:

    1. Lux, Thomas, 2008. "Applications of statistical physics in finance and economics," Kiel Working Papers 1425, Kiel Institute for the World Economy (IfW).
    2. Hegyi, Géza & Néda, Zoltán & Augusta Santos, Maria, 2007. "Wealth distribution and Pareto's law in the Hungarian medieval society," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 380(C), pages 271-277.
    3. Antonio Doria, Francisco, 2011. "J.B. Rosser Jr. , Handbook of Research on Complexity, Edward Elgar, Cheltenham, UK--Northampton, MA, USA (2009) 436 + viii pp., index, ISBN 978 1 84542 089 5 (cased)," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1-2), pages 196-204, April.
    4. Guy Katriel, 2015. "The Immediate Exchange model: an analytical investigation," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 88(1), pages 1-6, January.
    5. Thomas Lux, 2006. "Applications of Statistical Physics in Finance and Economics," Working Papers wpn06-07, Warwick Business School, Finance Group.
    6. Troy Tassier, 2013. "Handbook of Research on Complexity, by J. Barkley Rosser, Jr. and Edward Elgar," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 39(1), pages 132-133.
    7. Derzsy, N. & Néda, Z. & Santos, M.A., 2012. "Income distribution patterns from a complete social security database," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(22), pages 5611-5619.
    8. N. Derzsy & Z. Neda & M. A. Santos, 2012. "Income distribution patterns from a complete social security database," Papers 1203.1880, arXiv.org.
    9. Thomas Lux, 2009. "Applications of Statistical Physics in Finance and Economics," Chapters,in: Handbook of Research on Complexity, chapter 9 Edward Elgar Publishing.
    10. Vázquez-Montejo, J. & Huerta-Quintanilla, R. & Rodríguez-Achach, M., 2010. "Wealth condensation in a Barabasi–Albert network," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(7), pages 1464-1470.

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