A Chaotic Approach to Market Dynamics

TL;DR

This paper introduces a chaotic gas-like model to better understand market dynamics, successfully reproducing real-world money distributions and revealing the inherent instability and inequality in economic systems.

Contribution

It presents a novel chaotic extension to existing gas-like models, enabling the reproduction and control of exponential and Pareto money distributions in markets.

Findings

Chaotic model reproduces real money distributions.

It can control the transition between distributions.

Reveals inherent instability and inequality in markets.

Abstract

Economy is demanding new models, able to understand and predict the evolution of markets. To this respect, Econophysics is offering models of markets as complex systems, such as the gas-like model, able to predict money distributions observed in real economies. However, this model reveals some technical hitches to explain the power law (Pareto) distribution, observed in individuals with high incomes. Here, non linear dynamics is introduced in the gas-like model. The results obtained demonstrate that a chaotic gas-like model can reproduce the two money distributions observed in real economies (Exponential and Pareto). Moreover, it is able to control 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 in the market and doom it to complete inequality.