🔤 base rates
|Mike Dariano||Nov 5, 2019|
This week is an alphabetical experiment from a long piece of content.
This idea rightly appears early in the alphabet because it's an idea that must come up early in our decision-making process. Base rates are how often something typically happens. Batting average in baseball is a base rate, estimated driving time for apps that provide maps is a base rate, marriage and divorce statistics are a base rate.
For anything, we do there is a base rate for it. We'd see this except our optimism gets in the way. We think we can hit more balls, drive faster, or make our marriage last longer. Maybe we can and maybe we can't but we should at least know and start with the base rate.
This idea has been popularized by Daniel Kahneman and even though he studied it he still fell victim to it. When collaborating on a textbook Kahneman and his peers thought it would take about two years. Break down the writing, editing, reviewing, etc. and spread it out over so many people and that seems right.
Nope. In that group was someone who had been in a lot of these groups. Kahneman turned to him - a man who had just given an estimate of about two years - and asked how long it normally took. In so many words he asked, ‘What is the base rate?'
"Seven years," the man said, "at a minimum." Kahneman was stunned. While people do have agency it's helpful when making projections to consider the past.
Bent Flyvbjerg studies mega projects like damns, roads, airports, stadiums, shopping plazas and so on. He's found that planners and pitchers, builders and bulldozers all underestimate the time and money and overestimate the benefits.
‘But,' the builder explains to this academic, ‘all projects are different with their intricacies and unexpected developments.' Flyvbjerg said:
"You hear this when you talk to project planners like I do in my research. You will hear them say you cannot compare projects, it's impossible, each project is unique. Our statistician laughs when he hears this because he says the curves of cost overruns and benefit shortfalls are so similar that it's ridiculous to talk about the projects as being unique."
Kahneman compares the base rate to being in the right ballpark. From there predictions can and should change by arguing well and making the case for why this time is different.
Texas Hold ‘em poker is a game with base rates. Certain combinations come up with some relative frequency. Certain risk-reward situations should be seized. But it's too often that people fail to: don't just do something, sit there.
After leaving a successful poker career Annie Duke taught people how to play. However, after an early lesson clients told Duke they didn't want to play in "a mechanical way." That is, they didn't want to follow the base rates. So she had to get them to choose the base rates. Duke reframed their choice. Instead of blinding following the odds, they were choosing to play with odds rather than willy-nilly. Much like how a parent offers carrots or broccoli to a young child rather than asking, 'do you want to eat a vegetable', Duke got her clients to pick a choice and take agency even though they were following the numbers.