Correlation between risk aversion and wealth distribution

J.R. Iglesias, S. Gonçalves, G. Abramson and J.L. Vega

Physica A: Statistical Mechanics and its Applications, 2004, vol. 342, issue 1, 186-192

Abstract: Different models of capital exchange among economic agents have been recently proposed trying to explain the emergence of Pareto's wealth power-law distribution. One important factor to be considered is the existence of risk aversion. In this paper, we study a model where agents possess different levels of risk aversion, going from a uniform to a random distribution. In all cases the risk aversion level for a given agent is constant during the simulation. While for uniform and constant risk aversion the system self-organizes in a distribution that goes from an unfair “one takes all” distribution to a Gaussian one, a random risk aversion can produce distributions going from exponential to log-normal and power-law. Besides, interesting correlations between wealth and risk aversion are found.

Keywords: Econophysics; Wealth distribution; Pareto's law; Risk aversion (search for similar items in EconPapers)
Date: 2004
References: View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:342:y:2004:i:1:p:186-192

DOI: 10.1016/j.physa.2004.04.077

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