Base Rates and Why We Ignore Them

The single most underused tool in everyday reasoning.

What a Base Rate Is

A base rate is the background frequency of something happening in a reference class. What percentage of restaurants close in their first year? What fraction of VC-backed startups reach Series B? What's the recidivism rate for this category of crime?

Base rates are the prior you should be updating from. They represent what you should expect before you know anything specific about the case in front of you.

Why We Ignore Them

Vivid anecdotes outcompete statistics in human cognition. We remember the immigrant who built a billion-dollar company from nothing because it's a compelling story. We don't naturally weight it against the thousands of equally motivated people who tried similar things and didn't make it.

This is compounded by survivorship bias: we mostly encounter the successes, because the failures are quiet and invisible. The business section is full of winner profiles, not cautionary tales from the 80% who didn't get funded.

The Practical Move

Before you evaluate any specific evidence about a case, ask: what's the base rate for things like this?

Then update from there. If 80% of businesses in this category fail and you have some evidence that this one is better than average, you should still expect more than a 20% failure rate — just maybe 60% instead.

Base rates don't tell you what will happen. They tell you what to expect before you have more information. That's a very useful thing to know.