Yard Sale Model
Is inequality inevitable?
Well, the Yard Sale model says that the rich become richer simply because of starting point.
Here's how it works: In a fair game between 1,000 people, each with $1,000, players can only use 20% of their wealth to play heads-or-tails. Normal distribution (bell curve) dictates that every player would win half (50%) their games on average.
But in reality, when you lose the first game, your 20% bet no longer becomes $200 but $160. This means that if you win again, you win less. Conversely, if you win your first game, you could potentially lose $220 in the second round. But your starting point at Game 2 is $980, which is still better than the other person (1 win, 1 loss) who is starting at $960.
If we play enough rounds among everyone, we would be left with one very, very rich person. In real life, the rich would start with way more than $1,000, so that puts them at an advantage.
So, yes! The Yard Sale model is statistically true.
