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Forecasting social inequality using agent-based modelling

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James Allen's talk given at PyData London 2017

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Forecasting social inequality using agent-based modelling

  1. 1. Forecasting social inequality using agent-based modelling PyData, 5th May 2017 James Allen james@sandtable.com
  2. 2. Who do you give your wealth to? ª Your partner? ª Your children? ª Your grandchildren? ª Your great-grandchildren? How does it affect their lives? What are the long-term effects on society? What happens when you die? 2
  3. 3. We should create simple ‘descendants trusts’ to encourage people to bequeath their assets to their grandchildren and great-grandchildren rather than leaving them to their children Descendants trusts 3 Even if you are quite wealthy, it is very likely that at least some of your grandchildren and great-grandchildren will have dropped out of your social class David Halpern, The Hidden Wealth of Nations (2010):
  4. 4. 4 The Guardian, 9th October 2016
  5. 5. 5 The Guardian, 9th October 2016 The Guardian, 10th October 2016
  6. 6. 6 Royal London, 18th April 2017 …the majority [of baby boomers] expect to pass some or all of this inheritance ‘straight on’ to the next generation… …only around 4 million of the 17 million people in the 25-44 age group are in the fortunate position of having grandparents with housing wealth
  7. 7. Simulations that work from micro-level behaviour to predict macro-level results Agents can be individuals, households, corporations, countries… Give the agents a set of behavioural rules, and an environment to interact with Run the simulation and see what happens! Test the consequences with agent-based models 7
  8. 8. Birth rate Death rate Coupling rate Uncoupling rate Distribution of wealth Distribution of incomes Connection between income and education Connection between parents’ and children’s education Almost all available from the Office of National Statistics What data do we need? 8
  9. 9. One “tick” == one year. Each tick: All agents grow older All adults (18-65) earn money and save/invest 5% of their income All adults earn 3% interest on their wealth If single: chance of forming a couple If in a couple: chance of splitting up If in a couple: chance of having a baby If 65: retire, putting half your wealth into an annuity If retired: spend 1% of your wealth each year All agents have a chance of dying Behavioural rules 9
  10. 10. Two options: 1. Wealth is passed to your partner, and then to your children 2. Wealth is passed to your partner, and then put in an descendants trust The trust pays out at age 18 (or immediately if you are over 18) Run the model twice, once with each option, and compare results Inheritance rules 10
  11. 11. 11 https://github.com/sandtable/inheritance Building the ABM in python
  12. 12. 12 “Mary”Individual results: direct inheritance
  13. 13. 13 “Paul”Individual results: descendants trusts
  14. 14. 14 A measure of the level of inequality of the population Gini = 0.00 Population results: Gini coefficient
  15. 15. 15 A measure of the level of inequality of the population Gini = 0.48 Population results: Gini coefficient
  16. 16. 16 A measure of the level of inequality of the population Gini = 0.75 Population results: Gini coefficient
  17. 17. 17 Population results: Gini coefficient
  18. 18. 18 Population results: Gini coefficient (age 20-39 only)
  19. 19. Descendants trusts increase the correlation between your and your parents’ wealth ...because you are often drawing from the same trusts Effect goes away if the trusts pay out to only one generation instead of two Assortative mating: partners tend to be similar to each other The bad news 19
  20. 20. 20 Population results: Gini coefficient (age 20-39 only)
  21. 21. Descendants trusts would, overall, decrease inequality... ...by transfering wealth to younger people ...by spreading wealth within each generation They may increase the correlation between your and your parents’ wealth Assortative mating reduces their effect All this can be explored using agent based models Conclusions 21 James Allen james@sandtable.com https://github.com/sandtable/inheritance

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