Correlation between Risk Aversion and Wealth distribution

Details Correlation between Risk Aversion and Wealth distribution Correlation between Risk Aversion and Wealth distribution

2003-11-06

arxiv.org/abs/cond-mat/0311127v1

Physics

Condensed Matter

Statistical Mechanics

8 pages, 7 figures, submitted to Physica A, Proceedings of the VIII LAWNP, Salvador, Brazil, 2003

Scientific paper

10.1016/j.physa.2004.04.077

Different models of capital exchange among economic agents have been proposed recently 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 posses different levels of risk aversion, going from uniform to a random distribution. In all cases the risk aversion level for a given agent is constant during the simulation. While for a 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.

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