Predictive Entropy
Predictive entropy comes from information theory and focuses on uncertainty, not direction. A market where one outcome is very likely has low entropy. A market where many outcomes seem equally possible has high entropy.
In prediction markets, entropy reflects how confident the crowd really is. Even if prices are moving, high entropy means the market has not settled on a clear expectation. On platforms like Polymarket, Kalshi, Myriad, and Manifold, predictive entropy appears in prediction markets data as wide probability distributions, frequent small adjustments, and ongoing disagreement.
As events approach resolution and uncertainty clears, entropy usually falls. When new risks or unknowns appear, entropy rises again, signaling confusion rather than conviction.
Why It Matters
Predictive entropy helps distinguish confidence from noise. It adds an extra layer to prediction markets data by showing how uncertain the forecast truly is.
How is predictive entropy different from probability?
Probability shows which outcome is favored. Entropy shows how confident the market is overall. Two markets can have the same leading probability but very different entropy levels, which leads to very different interpretations in prediction markets data.
What does high predictive entropy signal in prediction markets?
High entropy signals disagreement, unresolved uncertainty, or missing information. The market has not converged on a dominant view. Analysts often treat high-entropy prediction markets data as exploratory rather than decisive.
How can predictive entropy improve forecasting analysis?
Entropy helps identify fragile forecasts that may change quickly. It allows analysts to flag markets where probabilities look stable but uncertainty remains high. This makes prediction markets data more informative for risk assessment and scenario planning.
Real-World Example
A Kalshi market tracking a regulatory decision shows several outcomes priced closely together weeks before a deadline. Even though probabilities move slightly day to day, predictive entropy remains high, signaling unresolved uncertainty.
Predictive Entropy and FinFeedAPI
Measuring predictive entropy requires access to full probability distributions, not just headline prices. FinFeed's Prediction Markets API provides structured prediction markets data that developers and analysts can use to calculate entropy, monitor uncertainty, and build advanced forecasting tools.