Introduction to Decision Making

Every situation feels unique from the inside. That's the trap. When you're evaluating a specific opportunity — a startup, a job candidate, an investment — the compelling details of that particular case make statistical history feel irrelevant. This one is different.

The base rate is the statistical frequency of outcomes across many similar cases. It tells you what actually happens to "ones that seem different" over time. And the uncomfortable truth is that the base rate is almost always more predictive than the inside details of the specific case you're looking at.

Here's a concrete example. If nine out of ten restaurants that open in your city close within two years, that's the base rate for new restaurants. Now your cousin opens a restaurant with a great location, a unique concept, and a talented chef. Does the restaurant seem likely to succeed? Probably yes. Does that feeling update the base rate from 10% survival to, say, 80%? Almost certainly not. The same compelling factors are present in most of the restaurants that closed too.

The right approach is to start with the base rate and then adjust it — carefully, with evidence — based on what genuinely distinguishes this case. The mistake is to start from the compelling inside details and treat the base rate as noise. That's how people consistently overestimate the probability of success in hard things.