Living in an irrational society: Wealth distribution with correlations between risk and expected profits

Miguel A. Fuentes, M. Kuperman and J.R. Iglesias

Physica A: Statistical Mechanics and its Applications, 2006, vol. 371, issue 1, 112-117

Abstract: Different models to study the wealth distribution in an artificial society have considered a transactional dynamics as the driving force. Those models include a risk aversion factor, but also a finite probability of favoring the poorer agent in a transaction. Here, we study the case where the partners in the transaction have a previous knowledge of the winning probability and adjust their risk aversion taking this information into consideration. The results indicate that a relatively equalitarian society is obtained when the agents risk in direct proportion to their winning probabilities. However, it is the opposite case that delivers wealth distribution curves and Gini indices closer to empirical data. This indicates that, at least for this very simple model, either agents have no knowledge of their winning probabilities, either they exhibit an “irrational” behavior risking more than reasonable.

Keywords: Econophysics; Wealth distribution; Pareto's law (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:371:y:2006:i:1:p:112-117

DOI: 10.1016/j.physa.2006.04.088

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