behaviour
Base rates before stories
The rule
A vivid story feels like proof, but it is not. First ask what usually happens in cases like this, the way you'd ask how often that bus is actually late.
Where it flips
But a base rate can turn lazy if it ignores a real change in the facts. The fix is to say which new fact is strong enough to move the base rate.
Before you believe a market story, ask what usually happens in this kind of case. This wider look does not settle it. But it stops one shiny story from becoming your whole case.
A worked example
A trader sees three winning calls from one account and wants to follow the next. The wider look asks how many accounts made calls, how many failed quietly, and whether three wins is even unusual in that crowd.
How to spot it
- ·the story is vivid
- ·the sample is small
- ·the pile of quiet failures is missing
Daniel Kahneman · Thinking, Fast and Slow