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From Didactics to Discovery: 'Entropy Lab' as a Proof-of-Concept for Modelling Uncertainty
Tomasz Kopczewski1, Jan Lisicki1, Tomasz Potocki2
1University of Warsaw, Poland.
Nonlinear Dynamics, Psychology, and Life Sciences
|July 18, 2026
Summary
Entropy Lab, a novel decision-making tool, makes conditional entropy tangible. This research instrument allows participants to explore temporal predictability in markets, demonstrating its economic value.
Area of Science:
- Decision Sciences
- Behavioral Economics
- Information Theory
Background:
- Conditional entropy is a key concept in information theory, yet difficult to grasp experientially.
- Existing economic models often simplify or overlook the role of information processing costs and temporal predictability.
- Integrating diverse fields like thermodynamics of information and rational inattention offers new perspectives on economic decision-making.
Purpose of the Study:
- To introduce Entropy Lab, an experimental instrument designed to make conditional entropy experiential and measurable.
- To investigate how temporal predictability, influenced by conditional entropy, affects decision-making in simulated markets.
- To bridge theoretical concepts from information theory, economics, and physics within a unified experimental framework.
Main Methods:
- Developed Entropy Lab, an interactive simulation with four Markov-chain markets exhibiting varying conditional entropy.
- Participants made investment decisions over 40 rounds, with the option to purchase forecasts of market states.
- Introduced a hidden shock to alter market dynamics mid-experiment and tested under different payoff regimes.
Main Results:
- Markets with differing conditional entropy exhibited measurable differences in temporal predictability.
- The value of information (forecasts) was shown to be priceable and allocable by participants.
- A hidden shock demonstrated the disruptability of market predictability, altering entropy rankings.
Conclusions:
- Entropy Lab effectively operationalizes and integrates concepts from information theory, economics, and physics.
- The study provides a proof of concept for using experimental tools to study decision-making under uncertainty and varying information structures.
- The findings suggest that temporal predictability, linked to conditional entropy, is a crucial factor in economic behavior and market dynamics.
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