Twenty-five years of random asset exchange modeling

TL;DR

This review comprehensively covers 25 years of research on random asset exchange models in econophysics, highlighting key models, variations, successes, limitations, and future directions for incorporating economic structure.

Contribution

It provides the first thorough review of the entire random asset exchange literature, detailing foundational models, variations, and critical analysis of their strengths and weaknesses.

Findings

Models successfully replicate wealth distribution patterns.

Limitations include oversimplified assumptions about economic interactions.

Future work should incorporate explicit economic structures.

Abstract

The last twenty-five years have seen the development of a significant literature within the subfield of econophysics which attempts to model economic inequality as an emergent property of stochastic interactions among ensembles of agents. In this article, the literature surrounding this approach to the study of wealth and income distributions, henceforth the "random asset exchange" literature following the terminology of Sinha (2003), is thoroughly reviewed for the first time. The foundational papers of Dragulescu and Yakovenko (2000), Chakraborti and Chakrabarti (2000), and Bouchaud and Mezard (2000) are discussed in detail, and principal canonical models within the random asset exchange literature are established. The most common variations upon these canonical models are enumerated, and significant papers within each kind of modification are introduced. The successes of such models, as well as the limitations of their underlying assumptions, are discussed, and it is argued that the literature should move in the direction of more explicit representations of economic structure and processes to acquire greater explanatory power.