Self-Fulfilling Prophecies, Quasi Non-Ergodicity & Wealth Inequality

Roger Farmer and Jean-Philippe Bouchaud

No 28261, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We construct a model of an exchange economy in which agents trade assets contingent on an observable signal, the probability of which depends on public opinion. The agents in our model are replaced occasionally and each person updates beliefs in response to observed outcomes. We show that the distribution of the observed signal is described by a quasi-non-ergodic process and that people continue to disagree with each other forever. These disagreements generate large wealth inequalities that arise from the multiplicative nature of wealth dynamics which make successful bold bets highly profitable.

JEL-codes: E0 G0 G12 G14 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-mac
Note: AP EFG
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Citations: View citations in EconPapers (3)

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Working Paper: Self-Fulfilling Prophecies, Quasi Non-Ergodicity & Wealth Inequality (2022)
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