Abstract
Financial insecurity in the U.S. is on the rise, accelerated by the growth of the gig economy and the associated income instability, increasing inequality, and the effects of algorithmic decision-making. Such insecurity has been studied within the framework of precarity – a concept that captures people’s latent uncertainty and precariousness. To alleviate precarity, we must study it. Precarity manifests over time as a sequence of events for an individual. Therefore, we must study individual trajectories, rather than the trajectory of aggregate properties of populations or snapshot analysis of an automated decision process. Doing so requires an agent behavior model that can simulate a number of related phenomena simultaneously: how individual consumption reacts to uncertainty in one’s financial status, how predictive tools impact income, and how utility-maximizing individuals behave in the long term. In this paper, we develop an agent-based simulation framework with realistic elements to examine the dynamics of precarity. Our model combines different threads of inquiry in economics and incorporates models of consumption, ruin, and investment. Our results illustrate how precarity, if ignored by policy-makers, can exacerbate the ill-effects of automated decision-making. Our framework also allows us to experiment with different strategies to mitigate precarity and evaluate their effectiveness.
The first two authors contributed equally.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Abebe, R., Kleinberg, J., Weinberg, S.M.: Subsidy allocations in the presence of income shocks. In: Proceedings of the AAAI Conference on Artificial Intelligence, vol. 34, no. 05, pp. 7032–7039 (2020). https://doi.org/10.1609/aaai.v34i05.6188. https://ojs.aaai.org/index.php/AAAI/article/view/6188
Asmussen, S., Albrecher, H.: Ruin Probabilities, vol. 14. World Scientific, New Jersey (2010)
Barberis, N.C.: Thirty years of prospect theory in economics: a review and assessment. J. Econ. Perspect. 27(1), 173–196 (2013)
Bayraktar, E., Young, V.R.: Maximizing utility of consumption subject to a constraint on the probability of lifetime ruin (2012)
Benhabib, J., Bisin, A., Zhu, S.: The wealth distribution in Bewley economies with capital income risk. J. Econ. Theory 159, 489–515 (2015)
Butler, J.: Precarious Life: The Powers of Mourning and Violence. Verso Books, London (2006)
Bütler, M.: Neoclassical life-cycle consumption: a textbook example. Econ. Theor. 17(1), 209–221 (2001)
Dickler, J.: With inflation stubbornly high, 58% of Americans are living paycheck to paycheck: CNBC survey (2023). https://www.cnbc.com/2023/04/11/58percent-of-americans-are-living-paycheck-to-paycheck-cnbc-survey-reveals.html
Division of Consumer and Community Affairs: Economic well-being of US households in 2022 (2023). https://www.federalreserve.gov/publications/files/2022-report-economic-well-being-us-households-202305.pdf
Donovan, S.A., Bradley, D.H., Shimabukuru, J.O.: What does the gig economy mean for workers? (2016)
El-Sibaie, A.: Tax brackets (2019). https://taxfoundation.org/data/all/federal/2019-tax-brackets
Eslami, M., Vaccaro, K., Lee, M.K., Elazari Bar On, A., Gilbert, E., Karahalios, K.: User attitudes towards algorithmic opacity and transparency in online reviewing platforms. In: Proceedings of the 2019 CHI Conference on Human Factors in Computing Systems, CHI 2019, pp. 1–14. Association for Computing Machinery, New York (2019). https://doi.org/10.1145/3290605.3300724
Friedman, M.: The permanent income hypothesis. In: A Theory of the Consumption Function, pp. 20–37. Princeton University Press, Princeton (1957)
Friedman, M.: Theory of the Consumption Function. Princeton University Press, Princeton (2018)
Hardy, B.L., Logan, T.D.: Racial economic inequality amid the COVID-19 crisis. The Hamilton Project 1, 1–10 (2020)
Kac, M.: On distributions of certain Wiener functionals. Trans. Am. Math. Soc. 65(1), 1–13 (1949)
Kannan, S., Roth, A., Ziani, J.: Downstream effects of affirmative action. In: Proceedings of the Conference on Fairness, Accountability, and Transparency, FAT* 2019, pp. 240–248. Association for Computing Machinery, New York (2019). https://doi.org/10.1145/3287560.3287578
Karatzas, I., Lehoczky, J.P., Sethi, S.P., Shreve, S.E.: Explicit solution of a general consumption/investment problem. Math. Oper. Res. 11(2), 261–294 (1986). http://www.jstor.org/stable/3689808
Klügl, F., Kyvik Nordås, H.: Modelling agent decision making in agent-based simulation - analysis using an economic technology uptake model. In: Proceedings of the 2023 International Conference on Autonomous Agents and Multiagent Systems, AAMAS 2023, pp. 1903–1911. International Foundation for Autonomous Agents and Multiagent Systems, Richland, SC (2023)
Kushel, M., Moore, T.: Towards a new understanding: the California statewide study of people experiencing homelessness (2023)
Liu, L.T., Dean, S., Rolf, E., Simchowitz, M., Hardt, M.: Delayed impact of fair machine learning. In: Dy, J., Krause, A. (eds.) Proceedings of the 35th International Conference on Machine Learning. Proceedings of Machine Learning Research, vol. 80, pp. 3150–3158. PMLR, Stockholmsmassan, Stockholm Sweden (2018). https://proceedings.mlr.press/v80/liu18c.html
Ljungqvist, L., Sargent, T.J.: Recursive Macroeconomic Theory. MIT Press, Cambridge (2018)
Ma, Q., Stachurski, J., Toda, A.A.: The income fluctuation problem and the evolution of wealth. J. Econ. Theory 187, 105003 (2020)
Nokhiz, P., Ruwanpathirana, A.K., Patwari, N., Venkatasubramanian, S.: Precarity: modeling the long term effects of compounded decisions on individual instability. In: Proceedings of the 2021 AAAI/ACM Conference on AI, Ethics, and Society, AIES 2021, pp. 199–208. Association for Computing Machinery, New York (2021). https://doi.org/10.1145/3461702.3462529
Ritschard, G., Bussi, M., O’Reilly, J.: An index of precarity for measuring early employment insecurity. In: Ritschard, G., Studer, M. (eds.) Sequence Analysis and Related Approaches. Life Course Research and Social Policies, pp. 279–295. Springer, Cham (2018). https://doi.org/10.1007/978-3-319-95420-2_16
Sargent, T., Stachurski, J.: Quantitative economics. Technical report, Citeseer (2014)
Shin, Y.H., Lim, B.H.: Comparison of optimal portfolios with and without subsistence consumption constraints. Nonlinear Anal. 74(1), 50–58 (2011). https://doi.org/10.1016/j.na.2010.08.014
Stone, C.: Fiscal stimulus needed to fight recessions (2020). https://www.cbpp.org/research/economy/fiscal-stimulus-needed-to-fight-recessions
Wakker, P.P.: Explaining the characteristics of the power (CRRA) utility family. Health Econ. 17(12), 1329–1344 (2008)
Weller, C.: Working-class families are getting hit from all sides. Technical report, Center for American Progress (2018). https://www.americanprogress.org/article/working-class-families-getting-hit-sides/
Acknowledgments
This research was supported in part by grants from the MacArthur Foundation and the Ford Foundation.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2024 The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd.
About this paper
Cite this paper
Nokhiz, P., Ruwanpathirana, A.K., Patwari, N., Venkatasubramanian, S. (2024). Agent-Based Simulation of Decision-Making Under Uncertainty to Study Financial Precarity. In: Yang, DN., Xie, X., Tseng, V.S., Pei, J., Huang, JW., Lin, J.CW. (eds) Advances in Knowledge Discovery and Data Mining. PAKDD 2024. Lecture Notes in Computer Science(), vol 14648. Springer, Singapore. https://doi.org/10.1007/978-981-97-2238-9_4
Download citation
DOI: https://doi.org/10.1007/978-981-97-2238-9_4
Published:
Publisher Name: Springer, Singapore
Print ISBN: 978-981-97-2240-2
Online ISBN: 978-981-97-2238-9
eBook Packages: Computer ScienceComputer Science (R0)