James Allen's talk given at PyData London 2017

1. Forecasting social inequality using
agent-based modelling
PyData, 5th May 2017
James Allen
james@sandtable.com

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. 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
The Guardian, 9th October 2016

5. 5
The Guardian, 9th October 2016
The Guardian, 10th October 2016

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. 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. 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. 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. 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
https://github.com/sandtable/inheritance
Building the ABM in python

12. 12
“Mary”Individual results: direct inheritance

13. 13
“Paul”Individual results: descendants trusts

14. 14
A measure of the level of inequality of the population
Gini = 0.00
Population results: Gini coefficient

15. 15
A measure of the level of inequality of the population
Gini = 0.48
Population results: Gini coefficient

16. 16
A measure of the level of inequality of the population
Gini = 0.75
Population results: Gini coefficient

17. 17
Population results: Gini coefficient

18. 18
Population results: Gini coefficient (age 20-39 only)

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
Population results: Gini coefficient (age 20-39 only)

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