Share - Embed - Investigate
What does the model predict?

Title and author:

author image W. Christian

What does the model predict?

Why does one agent obtain almost all of the wealth? The reason is that a percentage of the smaller wealth of the two agents is always transferred. Hence, richer agents lose a smaller percentage of their wealth compared to poorer agents. As most of the agents become poorer, richer agents rarely transfer wealth to other rich agents and hence rarely lose a significant percentage of their wealth. Run the model again and notice that before one agent ultimately receives almost all of the wealth, a small number of agents typically jockey for the top spot until one agent wins and gets almost everything.

The model we have discussed is too simple to represent the actual trades that people, corporations, and other entities undergo every day. Economies are complex systems that have many influences which are difficult to include in a simple model. For example, you might object to using the same percentage of the poorer agent for every exchange. However, if we change the value of this percentage, we would still obtain the same result that almost all the wealth goes to one agent. The value of the exchange percentage changes only how long it takes for almost all the wealth to finally go to one agent. Changing the initial wealth and how it is distributed initially might bias which agent finally obtains almost all the wealth, but will not change the behavior of the model. That is, almost all of the wealth will go to one or a few agents in a short time, but eventually one agent obtains almost all the wealth. If we obtain the same behavior for different values of the initial wealth, number of agents, and the percentage of the poorer agent’s wealth to be transferred, we can have some confidence that the behavior of this simple model is able to capture the qualitative behavior of real economies.

More important is the insight that random exchanges such as those in the model drive the economy toward the accumulation of wealth. Thus, wealth accumulation is not an anomaly, but the rule.


Excerpt From: Tobochnik, Christian, and Gould. “Modeling Wealth Inequality.” iBooks.