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Transition From Exponential To Power Law Income Distributions In A Chaotic Market

Author

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  • CARMEN PELLICER-LOSTAO

    (Department of Computer Science and BIFI, University of Zaragoza, Centro Politecnico Superior, Campus Río Ebro — Maria de Luna 3, Zaragoza (50015), Spain)

  • RICARDO LOPEZ-RUIZ

    (Department of Computer Science and BIFI, University of Zaragoza, Faculty of Science, Campus San Francisco, Building B, Zaragoza (50009), Spain)

Abstract

Economy is demanding new models, able to understand and predict the evolution of markets. To this respect, Econophysics offers models of markets as complex systems, that try to comprehend macro-, system-wide states of the economy from the interaction of many agents at micro-level. One of these models is the gas-like model for trading markets. This tries to predict money distributions in closed economies and quite simply, obtains the ones observed in real economies. However, it reveals technical hitches to explain the power law distribution, observed in individuals with high incomes. In this work, nonlinear dynamics is introduced in the gas-like model in an effort to overcomes these flaws. A particular chaotic dynamics is used to break the pairing symmetry of agents(i, j) ⇔ (j, i). The results demonstrate that a "chaotic gas-like model" can reproduce the Exponential and Power law distributions observed in real economies. Moreover, it controls the transition between them. This may give some insight of the micro-level causes that originate unfair distributions of money in a global society. Ultimately, the chaotic model makes obvious the inherent instability of asymmetric scenarios, where sinks of wealth appear and doom the market to extreme inequality.

Suggested Citation

  • Carmen Pellicer-Lostao & Ricardo Lopez-Ruiz, 2011. "Transition From Exponential To Power Law Income Distributions In A Chaotic Market," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 22(01), pages 21-33.
  • Handle: RePEc:wsi:ijmpcx:v:22:y:2011:i:01:n:s0129183111016038
    DOI: 10.1142/S0129183111016038
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    References listed on IDEAS

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    1. Perez, A.A, 2001. "Comment on “On the multinomial logic model” [Physica A 269 (1999) 9–15]," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 289(3), pages 606-606.
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    Cited by:

    1. J. Tenreiro Machado & Fernando B. Duarte & Gonçalo Monteiro Duarte, 2012. "Power Law Analysis of Financial Index Dynamics," Discrete Dynamics in Nature and Society, Hindawi, vol. 2012, pages 1-12, July.
    2. R. Lopez-Ruiz & E. Shivanian & S. Abbasbandy & J. L. Lopez, 2011. "A Generalized Continuous Model for Random Markets," Papers 1104.2187, arXiv.org, revised May 2011.

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