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Uncertainty, Indeterminacy and Shannon's Derivation of Entropy: Implications for Policy Administration - A Systems Theoretical Approach

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  • Author: A.G.Perison
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    Abstract

    Most prices and interest rates display fluctuating levels that embody extractable energy and equivalent amounts of money. Such fluctuations are also associated with varying degrees of uncertainty. Shannon's derivations of spectral entropy and information content offer computational techniques for unraveling the portion of useful economies that is resident in such cycles that nevertheless goes unaccounted for as a significant source of missing data in the composition of the overall economy. Shannon's concept of spectral entropy can also be exploited to quantify the amount of uncertainty that would preside over expectations, either adaptive or rational. Apart from Clausius-type and Boltzmannian derivations, Shannon's derivation of entropy which follows Boltzmann's lead, can be applied to price and rate fluctuations, thus unraveling a higher order generator mechanism for cost pressure and inflation. In this working paper the basis and fundamentals of Shannon- Weaver formulas are discussed, in their raw forms, prior to application samples that will follow in a separate article.

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    File URL: http://128.118.178.162/eps/mac/papers/0112/0112001.html
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    Bibliographic Info

    Paper provided by EconWPA in its series Macroeconomics with number 0112001.

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    Length: 8 pages
    Date of creation: 05 Dec 2001
    Date of revision: 07 Dec 2001
    Handle: RePEc:wpa:wuwpma:0112001

    Note: Minor corrections and formating was applied on Dec 7. Type of Document - html; pages: 8; figures: graphics attachments, gif files
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    Web page: http://128.118.178.162

    Related research

    Keywords: Adaptive expectations; rational expectations; inflation targeting; decision analytical process; intelligent agents; seigniorage; active policy; inactive policy; exogenous uncertainty; nominal interest rate pegging; spectral analysis; relative power; spectral band; within- band entropy; between-band entropy; information percentage;

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