An Empirical Test of the Ergodic Hypothesis: Wealth Distributions in the United States
43 Pages Posted: 13 Jun 2016 Last revised: 26 Jul 2017
Date Written: January 30, 2017
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.
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