How can you make predictions on whether certain things will happen?
One effective way is to keep the base rate in mind. This refers to a statistical base, which other statistics rely on. For example, imagine a large taxi company has 20 percent yellow cabs and 80 percent red cabs. That means the base rate for yellow taxi cabs is 20 percent and the base rate for red cabs is 80 percent. If you order a cab and want to guess its color, remember the base rates and you will make a fairly accurate prediction.
We should therefore always remember the base rate when predicting an event, but unfortunately this doesn’t happen. In fact, base-rate neglect is extremely common.
One of the reasons we find ourselves ignoring the base rate is that we focus on what we expect rather than what is most likely. For example, imagine those cabs again: If you were to see five red cabs pass by, you’d probably start to feel it’s quite likely that the next one will be yellow for a change. But no matter how many cabs of either color go by, the probability that the next cab will be red will still be around 80 percent – and if we remember the base rate we should realize this. But instead we tend to focus on what we expect to see, a yellow cab, and so we will likely be wrong.
Base-rate neglect is a common mistake connected with the wider problem of working with statistics. We also struggle to remember that everything regresses to the mean. This is the acknowledgment that all situations have their average status, and variations from that average will eventually tilt back toward the average.
For example, if a football striker who averages five goals per month scores ten goals in September, her coach will be ecstatic; but if she then goes on to score around five goals per month for the rest of the year, her coach will probably criticize her for not continuing her “hot streak.” The striker wouldn’t deserve this criticism, though, because she is only regressing to the mean!
