An Empirical Test of the Ergodic Hypothesis: Wealth Distributions in the United States

43 Pages Posted: 13 Jun 2016 Last revised: 26 Jul 2017

See all articles by Yonatan Berman

Yonatan Berman

Paris School of Economics (PSE); London Mathematical Laboratory

Ole Peters

London Mathematical Laboratory; Santa Fe Institute

Alexander Adamou

London Mathematical Laboratory

Date Written: January 30, 2017

Abstract

Classical studies of wealth inequality make the "ergodic hypothesis" that rescaled wealth converges rapidly to a stationary distribution. This allows powerful analytical techniques but constrains models. We test the hypothesis and find it unsupported by data. In a simple model of a growing economy with wealth reallocation, we fit the reallocation parameter to historical United States wealth data. We find negative reallocation, i.e. from poorer to richer, for which no stationary distribution exists. When we find positive reallocation, convergence to the stationary distribution is slow. Both cases invalidate the ergodic hypothesis. Studies which make it should be treated with caution.

Suggested Citation

Berman, Yonatan and Peters, Ole and Adamou, Alexander, An Empirical Test of the Ergodic Hypothesis: Wealth Distributions in the United States (January 30, 2017). Available at SSRN: https://ssrn.com/abstract=2794830 or http://dx.doi.org/10.2139/ssrn.2794830

Yonatan Berman (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

London Mathematical Laboratory

8 Margravine Gardens
London, London W6 8RH
United Kingdom

Ole Peters

London Mathematical Laboratory ( email )

14 Buckingham St
London, WC2N 6DF
United Kingdom

Santa Fe Institute ( email )

1399 Hyde Park Road
Santa Fe, NM 87501
United States

HOME PAGE: http://tuvalu.santafe.edu/~ole/

Alexander Adamou

London Mathematical Laboratory ( email )

14 Buckingham St
London, WC2N 6DF
United Kingdom

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