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Finite market size as a source of extreme wealth inequality and market instability

Zhi-Feng Huang·Sorin Solomon
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Abstract

We study the finite-size effects in some scaling systems, and show that the finite number of agents N leads to a cut-off in the upper value of the Pareto law for the relative individual wealth. The exponent $α$ of the Pareto law obtained in stochastic multiplicative market models is crucially affected by the fact that N is always finite in real systems. We show that any finite value of N leads to properties which can differ crucially from the naive theoretical results obtained by assuming an infinite N. In particular, finite N may cause in the absence of an appropriate social policy extreme wealth inequality $α< 1$ and market instability.

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Zhi-Feng Huang, Sorin Solomon. 2001-03-07. Finite market size as a source of extreme wealth inequality and market instability. https://doi.org/10.1016/s0378-4371(01)00113-3

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