Wealth Inequality and the Ergodic Hypothesis: Evidence from the United States

40 Pages Posted: 13 Jun 2016 Last revised: 20 Aug 2020

See all articles by Yonatan Berman

Yonatan Berman

London Mathematical Laboratory

Ole Peters

London Mathematical Laboratory; Santa Fe Institute

Alexander Adamou

London Mathematical Laboratory

Date Written: July 15, 2020

Abstract

Many studies of wealth inequality make the ergodic hypothesis that rescaled wealth converges rapidly to a stationary distribution. Changes in distribution are expressed through changes in model parameters, reflecting shocks in economic conditions, with rapid equilibration thereafter. Here we test the ergodic hypothesis in an established model of wealth in a growing and reallocating economy. We fit model parameters to historical data from the United States. In recent decades, we find negative reallocation, from poorer to richer, for which no stationary distribution exists. When we find positive reallocation, convergence to the stationary distribution is slow. Our analysis does not support using the ergodic hypothesis in this model for these data. It suggests that inequality evolves because the distribution is inherently unstable on relevant timescales, regardless of shocks. Studies of other models and data, in which the ergodic hypothesis is made, would benefit from similar tests.

Keywords: Wealth inequality, Wealth dynamics, Ergodic hypothesis, Stochastic processes

JEL Classification: C1, D3, G5

Suggested Citation

Berman, Yonatan and Peters, Ole and Adamou, Alexander, Wealth Inequality and the Ergodic Hypothesis: Evidence from the United States (July 15, 2020). Available at SSRN: https://ssrn.com/abstract=2794830 or http://dx.doi.org/10.2139/ssrn.2794830

Yonatan Berman (Contact Author)

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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