Abstract

MONTENEGRO, Álvaro. INFORMATION AND ENTROPY IN ECONOMICS. Rev.econ.inst. [online]. 2011, vol.13, n.25, pp.199-221. ISSN 0124-5996.

This document explores various information theoretical concepts initially developed in physics and engineering and used today in many other fields. Information is defined as a quantity inversely proportional to the probability that an event happens and entropy is defined as the expected value of information. Some information applications in economics include Theil's inequality index, Akaike's information criterion, and the maximum entropy estimation method. Also, information theoretical concepts have been applied to the statistical analysis of financial data. This paper includes an empirical illustration relating to stock market price forecasting.

Keywords : information theory; entropy; messages; economics; econometrics.

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