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Entropy Method for Decision-Making: Uncertainty Cycles in Tourism Demand.
1Department of Theory and Economic History, PhD Program in Economic and Business of University of Malaga, Plaza del Ejido, s/n, 29013 Malaga, Spain.
Entropy (Basel, Switzerland)
|November 27, 2021
Summary
This study introduces a new method to predict uncertainty cycles in tourist accommodation decisions, finding a 6-12 month periodicity. Uncertainty elasticity varies by tourist origin, significantly impacting apartment demand in Spain.
Area of Science:
- Economics
- Financial Markets
- Tourism Research
Background:
- Temporary decision-making in the tourist accommodation market (hotels and apartments) is subject to uncertainty cycles.
- The Adaptive Markets Hypothesis suggests entropy and cycles play a role in market behavior.
- Understanding these cycles is crucial for market stability and forecasting.
Purpose of the Study:
- To develop a novel methodology for measuring, classifying, and predicting uncertainty cycles in tourist accommodation decision-making.
- To analyze the influence of entropy and cyclical patterns within the framework of the Adaptive Markets Hypothesis.
- To investigate causality relationships between market variables in both time and frequency domains.
Main Methods:
- Analysis of random cycles over time and in the frequency domain.
- Study of linear and nonlinear causality relationships between key variables.
- Empirical data analysis from January 2005 to December 2018 for the tourist accommodation market.
Main Results:
- Identified a decision-making uncertainty periodicity of 6-12 months across different tourist nationalities.
- Determined the cross-price elasticity of demand between tourist apartments and hotels is approximately 1%.
- Established a strong correlation between the uncertainty elasticity factor and tourists' countries of origin, with significant variations in impact on apartment demand (e.g., 7.21% for Ireland).
Conclusions:
- The developed modeling approach demonstrates a high explanatory capacity (99%) across all analyzed models.
- Uncertainty cycles and their drivers are predictable and significantly influence tourist accommodation market dynamics.
- Origin country significantly moderates the impact of market uncertainty on tourist accommodation choices, particularly for apartments.
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