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posted 13. June 2005 15:06
Modeling multiplicative wealth exchange in a 1-lattice
by Yee. J. Yap
Abstract: We introduce a general model of multiplicative wealth exchange which mimics the dynamics of capital flow between agents in a 1-d network. Different scenarios can be generated by varying the values of the parameters in the trading algorithm of this model. In this paper, we have chosen two scenarios, one to represent financial swindling and another to represent business dealings between traders. Theoretical prediction of the wealth distributions are in agreement with numerical simulation results. The wealth distribution at steady state of the first scenario is found to be Gaussian which is consistent with the central limit theorem. In the second scenario, the wealth distribution evolves into an unstable power law where the cutoffs vary ad infinitum. The aim of this paper is to investigate the correlation between the parameters in the trading algorithm of a multiplicative wealth exchange model and its wealth distribution.
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