Modelling Inequality

Abstract

Econophysics is a new and exciting cross-disciplinary research field that applies models and modelling techniques from statistical physics to economic systems. It is not, however, without its critics: prominent figures in more mainstream economic theory have criticised some elements of the methodology of econophysics. One of the main lines of criticism concerns the nature of the modelling assumptions and idealisations involved, and a particular target are 'kinetic exchange' approaches used to model the emergence of inequality within the distribution of individual monetary income. This paper will consider such models in detail, and assess the warrant of the criticisms drawing upon the philosophical literature on modelling and idealisation. Our aim is to provide the first steps towards informed mediation of this important and interesting interdisciplinary debate, and our hope is to offer guidance with regard to both the practice of modelling inequality, and the inequality of modelling practice.

Models on the move: Migration and imperialism

“…Philosophical work on the methodological foundations of econophysics is fairly limited with a small literature, focusing on financial econophysics, due to Kuhlmann (2006Kuhlmann ( , 2014, Rickles (2007Rickles ( , 2008, Casini (2014) and Jhun et al (2017). In a recent paper, Thébault et al (2016) provided a philosophical analysis of the example of kinetic exchange models of wealth distributions. Here we will briefly consider the key details of the most basic 'kinetic exchange' model of wealth -the 'DY' model of Drǎgulescu and Yakovenko (2000) -in order to illustrate the idea of model migration.…”

“…Criticism from the perspective of traditional economics is most piquantly found in Gallegati et al (2006). For extensive philosophical discussion see Thébault et al (2016).…”

On the Monetary Causes of Inequality: A Review of the Literature and an Alternate Way Forward

“…Binary interactions (rectius, transactions) between agents belonging to the system do not constitute an automatic redistribution [60]. Suppose that at every moment of time ' ≥ 0, each agent 4 has a certain level of wealth ≥ 0.…”

“…The agents belonging to the system are the 0 particles, which comprise that system 6 , which are intrinsically endowed with a closed and defined volumetric characteristic: like the particles, each agent interacts by virtue of a certain velocity and according to a spatial position vector 7 . In economic terms, these peculiarities can be identified within the interacting agents' initial wealth conditions, their individual protection indexes 8 and in the random risk components [18,60].…”

Knowledge transfer and its contexts

“…Other examples are the transfer of game theoretic models into evolutionary biology or of mathematical models from physics and complexity theory into economics. The hope in the latter example, known under the label of econophysics, is to better predict the dynamics of financial markets and other economic systems by means of a different set of models than those based on standard economic assumptions (Jhun, Palacios, & Weatherall, 2017;Thébault, Bradley, & Reutlinger, 2018). Also, models from engineering, after extensive modification, have been increasingly used in synthetic biology where they have called into question a variety of basic principles of existing theoretical frameworks (e.g., Knuuttila/ García-Deister this issue).…”