Why the Rich Can Get Richer by Sheer Dumb Luck

I’d long suspected that the rich tend to get richer, and not just because their larger wealth translates into more political influence and the capability to manipulate the system for their own benefit.  I wondered, suppose we could factor out all those other kinds of advantages that result from having more money, would it still be true that those with more money have an easier time gaining even more money, and conversely, would those with less money tend to lose even more of their limited funds?  I decided to do the experiment with a series of computer simulations to find out what happens.

And as you might suspect from the title, the result of the simulations shows that the rich do tend to get richer without even trying.  But the reasons might be surprising to you, and it is worthwhile trying to understand what is happening, so you can follow along here as I reconstruct what I did to explore this question. Read the rest of this entry »

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