Adaptive decision making via entropy minimization

How the Brain Becomes the Mind: Can Thermodynamics Explain the Emergence and Nature of Emotions?

The neural systems' electric activities are fundamental for the phenomenology of consciousness. Sensory perception triggers an information/energy exchange with the environment, but the brain's recurrent activations maintain a resting state with constant parameters. Therefore, perception forms a closed thermodynamic cycle. In physics, the Carnot engine is an ideal thermodynamic cycle that converts heat from a hot reservoir into work, or inversely, requires work to transfer heat from a low- to a high-temperature reservoir (the reversed Carnot cycle). We analyze the high entropy brain by the endothermic reversed Carnot cycle. Its irreversible activations provide temporal directionality for future orientation. A flexible transfer between neural states inspires openness and creativity. In contrast, the low entropy resting state parallels reversible activations, which impose past focus via repetitive thinking, remorse, and regret. The exothermic Carnot cycle degrades mental energy. Therefore, the brain's energy/information balance formulates motivation, sensed as position or negative emotions. Our work provides an analytical perspective of positive and negative emotions and spontaneous behavior from the free energy principle. Furthermore, electrical activities, thoughts, and beliefs lend themselves to a temporal organization, an orthogonal condition to physical systems. Here, we suggest that an experimental validation of the thermodynamic origin of emotions might inspire better treatment options for mental diseases.

Performance of Portfolios Based on the Expected Utility-Entropy Fund Rating Approach

Yang and Qiu proposed and reframed an expected utility–entropy (EU-E) based decision model. Later on, a similar numerical representation for a risky choice was axiomatically developed by Luce et al. under the condition of segregation. Recently, we established a fund rating approach based on the EU-E decision model and Morningstar ratings. In this paper, we apply the approach to US mutual funds and construct portfolios using the best rating funds. Furthermore, we evaluate the performance of the fund ratings based on the EU-E decision model against Morningstar ratings by examining the performance of the three models in portfolio selection. The conclusions show that portfolios constructed using the ratings based on the EU-E models with moderate tradeoff coefficients perform better than those constructed using Morningstar. The conclusion is robust to different rebalancing intervals.