THE REAL AND ILLUSORY VIRTUES OF ENTROPY-BASED MEASURES FOR BUSINESS AND ECONOMIC ANALYSIS

The entropy measure H=−σp_i log p_i is being used with increasing frequency in the analysis of business and economic data. It is, however, simply another measure of dispersion which can be related to the moments of the probability function. Its virtues stem from its decomposition and interpretative properties. This paper surveys the uses to which the measure has been put in the literature, and discusses whether its use has been appropriate and innovative.