Something for the mathematicians

[doris_day]

This forum has been so useful to me over the years, I'm going to present those interested with a concept that I've found to be very valuable. I'm not going to say much about it other than what it is and how it can be calculated. Its then up to those who want to experiment with it to do just that.

The concept is 'Entropy' and its a measure of the 'spread' of prices in a market.
Say the probability of winning (as measured by their price) of each market participant is x then Entropy is calculated thus: =Sum(xlogx)

Go play with it. Its more useful than you might first think......

[osknows]

this is a bit 'random'

[jokerjoe]

Thanks, that's very useful. I was trying to figure out how to measure the spread of prices the other day, what I came up with is not nearly as neat!

[alrodopial]

So the entropy of two events from odds:
3.5 -> 28.6%
1.23 -> 81.3%

is 28.6*log(28.6)+81.3*log(81.3) = 28.6*1.456+81.3*1.91=198.8 ?

or the probability is usedas 0.286 ?

[doris_day]

0.286

[xraymitch]

This forum has been so useful to me over the years, I'm going to present those interested with a concept that I've found to be very valuable. I'm not going to say much about it other than what it is and how it can be calculated. Its then up to those who want to experiment with it to do just that.

The concept is 'Entropy' and its a measure of the 'spread' of prices in a market.
Say the probability of winning (as measured by their price) of each market participant is x then Entropy is calculated thus: =Sum(xlogx)

Go play with it. Its more useful than you might first think......

Thankyou for that Doris it is what I am looking for. Give me a month or so and I will report back here.

[Lewis]

Excuse my ignorance but how do I write "xlogx" in excel.

I am straining back to remember about logs and remember there is normally a base in addition to the number.

[Thanks for this looks like the 'entropy' could prove useful]

[Lewis]

Actually....

=X(ln(x)) does this look right? natural log is coming back to me know

[Royville]

Hi,

I saw this thread when it first came out and I couldn't get my head around it then!

Would some kind person like to explain what this is all about please - in layman's terms.

I'm very intrigued and would love to know/learn more.

Regards
Royville

[doris_day]

The explanation is in the first post really.

Entropy quantifies the 'spread' of prices in a market. For instance if you had five runners and they were all priced around 6.0 you would have one number and if in another market you had a short priced favourite of, say, 1.8 and all the rest around 12.0 then you'd get a totally different number, both reflecting the respective 'spread' of prices. Its sometimes valuable to be able to quantify the spread of prices as some algorithms work better in one type of market rather than another.

[Royville]

Thanks for the reply Doris.

I don't suppose you could simplify it any more than that really!

Still lost though...

Royville