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Entropies of Negative Incomes, Pareto-Distributed Loss, and Financial Crises
Gao JB(高剑波); Hu J; Mao X; Zhou M; Gurbaxani B; Lin J; Gao, JB (reprint author), PMB Intelligence LLC, W Lafayette, IN 47996 USA
Source PublicationPLOS One
AbstractHealth monitoring of world economy is an important issue, especially in a time of profound economic difficulty world-wide. The most important aspect of health monitoring is to accurately predict economic downturns. To gain insights into how economic crises develop, we present two metrics, positive and negative income entropy and distribution analysis, to analyze the collective "spatial'' and temporal dynamics of companies in nine sectors of the world economy over a 19 year period from 1990-2008. These metrics provide accurate predictive skill with a very low false-positive rate in predicting downturns. The new metrics also provide evidence of phase transition-like behavior prior to the onset of recessions. Such a transition occurs when negative pretax incomes prior to or during economic recessions transition from a thin-tailed exponential distribution to the higher entropy Pareto distribution, and develop even heavier tails than those of the positive pretax incomes. These features propagate from the crisis initiating sector of the economy to other sectors.
KeywordSocial Phase-transitions Law Economics Markets
Subject AreaLife Sciences & Biomedicine - Other Topics
Indexed BySCI
WOS IDWOS:000295943000009
WOS Research AreaScience & Technology - Other Topics
WOS SubjectMultidisciplinary Sciences
Funding OrganizationThis work is partially supported by the State Key Laboratory of Non-linear Mechanics (LNM), Institute of Mechanics, Chinese Academy of Sciences, Beijing, People's Republic of China. The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.
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Cited Times:3[WOS]   [WOS Record]     [Related Records in WOS]
Document Type期刊论文
Corresponding AuthorGao, JB (reprint author), PMB Intelligence LLC, W Lafayette, IN 47996 USA
Recommended Citation
GB/T 7714
Gao JB,Hu J,Mao X,et al. Entropies of Negative Incomes, Pareto-Distributed Loss, and Financial Crises[J]. PLOS One,2011,6(10):e25053.
APA 高剑波.,Hu J.,Mao X.,Zhou M.,Gurbaxani B.,...&Gao, JB .(2011).Entropies of Negative Incomes, Pareto-Distributed Loss, and Financial Crises.PLOS One,6(10),e25053.
MLA 高剑波,et al."Entropies of Negative Incomes, Pareto-Distributed Loss, and Financial Crises".PLOS One 6.10(2011):e25053.
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