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Self-fulfilling prophecies, quasi-non-ergodicity & wealth inequality
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Bouchaud, Jean-Philippe and Farmer, Roger E. A. (2023) Self-fulfilling prophecies, quasi-non-ergodicity & wealth inequality. Journal of Political Economy, 131 (4). pp. 947-993. doi:10.1086/722214 ISSN 0022-3808.
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WRAP-Self-fulfilling-prophecies-quasi-non-ergodicity-wealth-2022.pdf - Accepted Version - Requires a PDF viewer. Download (1002Kb) | Preview |
Official URL: https://doi.org/10.1086/722214
Abstract
We construct a model of an exchange economy in which agents trade assets contingent on an observable signal, the probability of which depends on public opinion. The agents in our model are replaced occasionally, and each person updates beliefs in response to observed outcomes. We show that the distribution of the observed signal is described by a quasi-nonergodic process and that people continue to disagree with each other forever. These disagreements generate large wealth inequalities that arise from the multiplicative nature of wealth dynamics, which makes successful bold bets highly profitable.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HB Economic Theory Q Science > QA Mathematics |
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Divisions: | Faculty of Social Sciences > Economics | ||||||||
Library of Congress Subject Headings (LCSH): | Macroeconomics -- Mathematical models, Ergodic theory, Stochastic processes | ||||||||
Journal or Publication Title: | Journal of Political Economy | ||||||||
Publisher: | University of Chicago Press | ||||||||
ISSN: | 0022-3808 | ||||||||
Official Date: | April 2023 | ||||||||
Dates: |
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Volume: | 131 | ||||||||
Number: | 4 | ||||||||
Page Range: | pp. 947-993 | ||||||||
DOI: | 10.1086/722214 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Reuse Statement (publisher, data, author rights): | © 2022 by [name of copyright holder]. Accepted for publication by Journal of Political Economy Journal Name on 27/07/2022 | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 29 July 2022 | ||||||||
Date of first compliant Open Access: | 10 August 2023 | ||||||||
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