Colloquium: Statistical mechanics of money, wealth, and income

TL;DR

This paper reviews statistical models of money, wealth, and income distributions, highlighting the exponential and power-law behaviors observed in empirical data and their analogy with physical systems.

Contribution

It synthesizes econophysics models and empirical findings, emphasizing the two-class distribution of wealth and income and their dynamic properties.

Findings

Wealth and income distributions exhibit exponential and power-law behaviors.

The lower class distribution is stable and stationary over time.

The upper class distribution is dynamic and out of equilibrium.

Abstract

This Colloquium reviews statistical models for money, wealth, and income distributions developed in the econophysics literature since the late 1990s. By analogy with the Boltzmann-Gibbs distribution of energy in physics, it is shown that the probability distribution of money is exponential for certain classes of models with interacting economic agents. Alternative scenarios are also reviewed. Data analysis of the empirical distributions of wealth and income reveals a two-class distribution. The majority of the population belongs to the lower class, characterized by the exponential ("thermal") distribution, whereas a small fraction of the population in the upper class is characterized by the power-law ("superthermal") distribution. The lower part is very stable, stationary in time, whereas the upper part is highly dynamical and out of equilibrium.