What is an example of base rate fallacy?

A classic explanation for the base rate fallacy involves a scenario in which 85% of cabs in a city are blue and the rest are green. One night, a cab is involved in a hit and run accident.

What is base rate fallacy in psychology?

The base-rate fallacy is people’s tendency to ignore base rates in favor of, e.g., individuating information (when such is available), rather than integrate the two. This tendency has important implications for understanding judgment phenomena in many clinical, legal, and social-psychological settings.

What are base rates in decision making?

In behavioral finance, base rate fallacy is the tendency for people to erroneously judge the likelihood of a situation by not taking into account all relevant data. Instead, investors might focus more heavily on new information without acknowledging how this impacts original assumptions.

How is base rate fallacy calculated?

Probability of Cancer in general = Pr(C) = 0.01. This is what we call base rate. Pr(R|C) = Probability of the positive test result (X) given that the woman has cancer (C). This is the probability of a true positive.

Where did the base rate fallacy come from?

The classic scientific demonstration of the base rate fallacy comes from an experiment, performed by psychologists Amos Tversky and Daniel Kahneman, in which participants received a description of 5 individuals apparently selected at random from a pool of descriptions that contained 70 lawyers and 30 engineers, or vice versa.

How is the representativeness heuristic related to the base rate fallacy?

The representativeness heuristic, which was introduced by Kahneman and Tversky, describes our tendency to judge the probability of something based on the extent to which the object or event in question is similar to the prototypical exemplar of the category it falls into.

Why do we ignore base rate in probability judgments?

Maya Bar-Hillel’s 1980 paper, “The base-rate fallacy in probability judgments” 5 addresses the limitations of previous theories of base rate fallacy and presents an alternate explanation: relevance. Specifically, we ignore base rate information because we believe it to be irrelevant to the judgment we are making.

What do we mean by relevant base rate information?

Base rate fallacy occurs when a person misjudges the likelihood of an event because he or she doesn’t take into account other relevant base rate information. What do we mean by relevant base rate information?