Base rates
Before judging your own case, ask how often things like this work out. Learn to find a base rate, adjust it for your situation, and resist the pull of one vivid story.
Base rate
How often something happens in general, across all similar cases, before you look at the details of your own. Psychologists Daniel Kahneman and Amos Tversky showed that people tend to ignore this number as soon as they have a specific, colourful description in front of them. The habit to build: start from the base rate, then adjust.
In many countries, roughly half of new small businesses close within about five years. That isn't a reason never to start one. It's the honest starting point for thinking about yours.
THE TRAP
Why one story beats a thousand cases
A story has a face, a voice and an ending. A base rate is a dull fraction. Your mind weighs the story more because it's easier to picture, not because it's better evidence. And your own plan is the most vivid story of all: you know every detail of why it will work.
Your plan for the café has the perfect corner location, your aunt's recipes and your energy. Every café that closed last year also had an owner who could list three reasons theirs was different.
Check yourself
Pouya wants to leave his job to become a full-time YouTuber. He has watched many interviews with creators who earn a good living. What should he find out first?
- Which camera the successful creators use
- Whether the successful creators enjoyed the work enough to keep going
- How many subscribers the top channel in his topic has, so he knows the target
- What share of people who start a channel and post for a year earn a living
Show the answer
What share of people who start a channel and post for a year earn a living
Yes. Interviews only show him the people it worked for. The base rate, across everyone who tried, is the honest starting point, and for this path it is low.
How to use a base rate
- Name the reference class
'Things like this' means what, exactly? Not 'businesses' but 'small cafés opened by first-time owners in a big city'. Narrow enough to be relevant, wide enough to have many cases.
- Get a rough number
You rarely need precision. 'About one in ten' versus 'about one in two' already changes the decision. Ask people who have seen many cases.
- Adjust for real differences
Move away from the base rate only for things that are known to matter and that you actually have: ten years in the trade, a signed first customer. 'I really want it' is not an adjustment.
- Adjust less than feels right
Your specifics always feel more special than they are. Move a little, not a lot.
A health screening example
A condition affects 1 in 100 people like Maryam.
The test catches 90% of people who have it.
It also wrongly flags 9% of people who don't.
Maryam tests positive. How worried should she be?
Take 1,000 people like her:
have it: 10 -> 9 test positive
don't have it: 990 -> about 89 test positive
All positives: 9 + 89 = 98
Really have it: 9 of those 98Chance Maryam has the condition: about 9%, not 90%.The condition is rare, so false alarms from the large healthy group outnumber true positives. These numbers are invented for illustration and real tests vary widely. A positive result always means one thing: talk to your doctor about the follow-up test.
Check yourself
A test that catches 90% of cases comes back positive for you. Whatever the condition, this means there is about a 90% chance you have it.
Show the answer
False
It depends on how common the condition is to begin with. When something is rare, most positives can be false alarms, as in Maryam's case where the real chance was about 9%. The base rate sets the starting point; the test result adjusts it. Your doctor can tell you what a positive really means for that test.
Two views of the same plan
Inside view
Looks at this case: my skills, my plan, my reasons. Produces a confident, detailed story. Almost always too optimistic, because the things that will go wrong aren't in the story yet.
Outside view
Looks at cases like this: how did it go for others who tried? Feels cold and a bit insulting. Usually closer to what happens. Start here, then let the inside view adjust it.
Check yourself
Match each decision to the base-rate question worth asking
Show the answer
- Starting a master's degree while working full time → How many people in that situation finish on time?
- Lending money to an acquaintance → How often do loans like this get paid back?
- Buying a rarely reviewed phone brand → How do this maker's older models hold up after two years?
- Applying for a job with 400 applicants → What share of applicants usually reach an interview?
Check yourself
Farhad is renovating his kitchen. The contractor says four weeks. Farhad's last two home projects were quoted at two and three weeks and took five and seven. His sister's kitchen took nine weeks. What is the most sensible plan?
- Plan for four weeks but tell the contractor to hurry
- Plan for four weeks: this contractor seems more organised
- Expect roughly double the quote, and arrange somewhere to cook for two months
- Cancel the renovation, since it will clearly never finish
Show the answer
Expect roughly double the quote, and arrange somewhere to cook for two months
Right. His own history and his sister's case say projects like this run about twice the quote. That's his base rate, and 'this contractor seems organised' is a small adjustment at most.
Check yourself
Is each person starting from the base rate or from the story?
- 'My neighbour smoked all his life and lived to 95, so it can't be that bad'
- 'Of the five people I know who moved abroad for work, how many stayed past two years?'
- 'I read about one plane crash, so I'm driving the 900 km'
- 'My last four reports each took about three evenings, so I'll book three'
- 'This founder dropped out of university and got rich, so degrees don't matter'
Show the answer
From the base rate: 'Of the five people I know who moved abroad for work, how many stayed past two years?', 'My last four reports each took about three evenings, so I'll book three'
From the story: 'My neighbour smoked all his life and lived to 95, so it can't be that bad', 'I read about one plane crash, so I'm driving the 900 km', 'This founder dropped out of university and got rich, so degrees don't matter'
Lesson recap
- The base rate is how often things like this happen in general. Start there, then adjust for your case.
- One vivid story, including your own plan, feels stronger than it is because it's easy to picture.
- When something is rare, even a good test gives many false alarms, so ask what a positive result really means.
- For time and cost, use how long similar things actually took, not how long this one should take.
- A base rate is a starting point, not a verdict, and the reference class must be one an honest stranger would pick.