Re: Investing

From: Eliezer S. Yudkowsky (sentience@pobox.com)
Date: Sun Jun 15 2003 - 15:01:27 MDT

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    Rafal Smigrodzki wrote:
    >>
    >> Normal or Pareto?
    >
    > ### Why Pareto?

    I vaguely remember hearing about a Pareto distribution. Possibly that was
    for rich people in general, though, as opposed to stock-market traders.

    The distribution of wealth among traders:

    Should be normal, if everyone makes trades in constant amounts.

    Should be log-normal, if everyone makes trades using a constant fraction
    of their current wealth.

    Should be Pareto, if market returns are dominated by occasional big wins
    that occur at random. (Or if the general wealth of entrants follows a
    Pareto distribution and the stock market doesn't change it much?)

    I think that's how it'd work out.

    -- 
    Eliezer S. Yudkowsky                          http://singinst.org/
    Research Fellow, Singularity Institute for Artificial Intelligence
    


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