What Base rate fallacy is
Base rate fallacy is a type of cognitive bias that occurs when people make decisions based on general information rather than on specific details. It is also known as base-rate neglect or base rate bias.
Steps of Base Rate Fallacy:
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People tend to ignore general information (base rate) and focus on specific details that are more easily accessible.
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This results in people making decisions based on information that is more readily available, rather than on the more general base rate information.
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The base rate information is often more accurate than the more specific information, leading to an incorrect decision.
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This is because the specific information may be more emotionally engaging and easier to recall, resulting in it being given more weight in the decision-making process.
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To avoid the base rate fallacy, it is important to consider all relevant information when making decisions, including the base rate information.
Examples
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A stock investor who ignores basic market data and relies solely on a single company’s past performance to make investment decisions.
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A student who believes that their chances of getting into a prestigious university are higher than the average acceptance rate due to their own personal abilities and success.
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A person who believes that they are more likely to win the lottery because they purchased more tickets than the average person.