Preventing Household Bankruptcy: The One-Third Rule in Financial Planning with Mathematical Validation and Game-Theoretic Insights

Aditi Godbole, Zubin Shah and Ranjeet S. Mudholkar

Papers from arXiv.org

Abstract: This paper analyzes the 1/3 Financial Rule, a method of allocating income equally among debt repayment, savings, and living expenses. Through mathematical modeling, game theory, behavioral finance, and technological analysis, we examine the rule's potential for supporting household financial stability and reducing bankruptcy risk. The research develops theoretical foundations using utility maximization theory, demonstrating how equal allocation emerges as a solution under standard economic assumptions. The game-theoretic analysis explores the rule's effectiveness across different household structures, revealing potential strategic advantages in financial decision-making. We investigate psychological factors influencing financial choices, including cognitive biases and neurobiological mechanisms that impact economic behavior. Technological approaches, such as AI-driven personalization, blockchain tracking, and smart contract applications, are examined for their potential to support financial planning. Empirical validation using U.S. Census data and longitudinal studies assesses the rule's performance across various household types. Stress testing under different economic conditions provides insights into its adaptability and resilience. The research integrates mathematical analysis with behavioral insights and technological perspectives to develop a comprehensive approach to household financial management.

Date: 2025-01
New Economics Papers: this item is included in nep-gth and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2501.15557 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2501.15557

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().