Self-Fulfilling Prophecies, Quasi Nonergodicity, and Wealth Inequality

S-Tier
Journal: Journal of Political Economy
Year: 2023
Volume: 131
Issue: 4
Pages: 947 - 993

Authors (2)

Jean-Philippe Bouchaud (not in RePEc) Roger E. A. Farmer (University of Warwick)

Score contribution per author:

4.022 = (α=2.01 / 2 authors) × 4.0x S-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

We construct a model of an exchange economy in which agents trade assets contingent on an observable signal, the probability of which depends on public opinion. The agents in our model are replaced occasionally, and each person updates beliefs in response to observed outcomes. We show that the distribution of the observed signal is described by a quasi-nonergodic process and that people continue to disagree with each other forever. These disagreements generate large wealth inequalities that arise from the multiplicative nature of wealth dynamics, which makes successful bold bets highly profitable.

Technical Details

RePEc Handle
repec:ucp:jpolec:doi:10.1086/722214
Journal Field
General
Author Count
2
Added to Database
2026-01-25