Glossarytaught in M6.03
Base rate
Also called base rate, outside view.
The historical frequency of an outcome across a reference class, used as the starting point before any specific information about the case.
If 8% of companies sustain 20% revenue growth for a decade, that is the base rate, and a forecast that a particular company will do so has to argue against it.
Neglecting base rates is among the best-documented errors in judgement. People weight the vivid, specific story in front of them and ignore the boring frequency. When the story is compelling and the sample is large, that is backwards.
Find the reference class first. Then adjust for what makes this case different.
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