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

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

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.

Suggested Citation

  • Fuentes, Miguel A. & Kuperman, M. & Iglesias, J.R., 2006. "Living in an irrational society: Wealth distribution with correlations between risk and expected profits," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 371(1), pages 112-117.
    • Handle: RePEc:eee:phsmap:v:371:y:2006:i:1:p:112-117
    DOI: 10.1016/j.physa.2006.04.088
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    References listed on IDEAS

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    1. Drăgulescu, Adrian & Yakovenko, Victor M., 2001. "Exponential and power-law probability distributions of wealth and income in the United Kingdom and the United States," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 213-221.
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    Cited by:

    1. Saralees Nadarajah, 2009. "The product t density distribution arising from the product of two Student’s t PDFs," Statistical Papers, Springer, vol. 50(3), pages 605-615, June.

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