One model that I don't understand is Gibrat's Law, that is because it doesn't work so it is combined with Pareto. It's almost as if the result was fudged and nobody ever wanted to look at it again.
Affine returns result in a distribution which can look like Gibrat's Law but has left and right tails that look like Pareto.
Thanks for the comment, but I'm afraid I don't have anything useful to contribute in response. I'd not even heard of Gibrat's Law before, so thanks for mentioning it.
Do you have any comments on the model in the article? I really liked your card game illustration of the progress of epidemics.
I've mulled over this a bit your model looks like the basis of an Agent-Based Model that could reproduce the wealth curve (approximately Gibrat / Pareto) given the correct interactions and a mechanism for the creation of wealth. That would probably require adding inflation and no differentiation between entities apart from chance. HTH. Zeb
I actually quite like having a model without inflation. The interesting thing about the idea of "raw" net worth is that nothing can affect it without you either gaining or losing an asset or liability.
Example: If I have $500K, and buy a house for $200K, then my RNW is "my house + $300K". If a typical price for a house like mine increases to $1M, my RNW is... "my house + $300K" i.e. it's unchanged.
This is one of the key features of the model which makes it linear, and reveals some important invariants.
The key thing is to strip down the model and gradually add complexity until you start matching real world behaviour. Note that you don't want to match other peoples simulations, which is what some of the climate modellers do and then claim that they can't be wrong because they got the same answer as everyone else.
I'd be more than happy if people were to build more complex models on top of this, where some assumptions are made about how people behave, but I don't think I'm best placed to do that myself. I'm also keen to promote the foundational model, because it explains so much with essentially no assumptions, and it's able to find errors in other theories, just like Newton's laws will show up errors in any theory about motion which predicts that momentum isn't conserved. Have you seen my article on Bastiat's broken window parable?
One model that I don't understand is Gibrat's Law, that is because it doesn't work so it is combined with Pareto. It's almost as if the result was fudged and nobody ever wanted to look at it again.
Affine returns result in a distribution which can look like Gibrat's Law but has left and right tails that look like Pareto.
Thanks for the comment, but I'm afraid I don't have anything useful to contribute in response. I'd not even heard of Gibrat's Law before, so thanks for mentioning it.
Do you have any comments on the model in the article? I really liked your card game illustration of the progress of epidemics.
I've mulled over this a bit your model looks like the basis of an Agent-Based Model that could reproduce the wealth curve (approximately Gibrat / Pareto) given the correct interactions and a mechanism for the creation of wealth. That would probably require adding inflation and no differentiation between entities apart from chance. HTH. Zeb
I actually quite like having a model without inflation. The interesting thing about the idea of "raw" net worth is that nothing can affect it without you either gaining or losing an asset or liability.
Example: If I have $500K, and buy a house for $200K, then my RNW is "my house + $300K". If a typical price for a house like mine increases to $1M, my RNW is... "my house + $300K" i.e. it's unchanged.
This is one of the key features of the model which makes it linear, and reveals some important invariants.
The key thing is to strip down the model and gradually add complexity until you start matching real world behaviour. Note that you don't want to match other peoples simulations, which is what some of the climate modellers do and then claim that they can't be wrong because they got the same answer as everyone else.
I'd be more than happy if people were to build more complex models on top of this, where some assumptions are made about how people behave, but I don't think I'm best placed to do that myself. I'm also keen to promote the foundational model, because it explains so much with essentially no assumptions, and it's able to find errors in other theories, just like Newton's laws will show up errors in any theory about motion which predicts that momentum isn't conserved. Have you seen my article on Bastiat's broken window parable?
www.economics21st.com/p/the-broken-window
I believe the case it makes is unarguable. What do you think?