From Daniel Kahneman’s “Thinking Fast and Slow”
When people make predictions, they often make them without consulting Base Rates or the “Outside View”. This is an illusion. You must use the Outside View when making predictions.
“There are two ideas to keep in mind about Bayesian reasoning and how we tend to mess it up. The first is that base rates matter, even in the presence of evidence about the case at hand. This is often not intuitively obvious.” (p. 154)
“The second is that intuitive impression of the diagnosticity of evidence are often exaggerated. The combination of WYSIATI and associative coherence tends to make us believe in the stories we spin for ourselves.” (p. 154)
“The essential keys to disciplined Bayesian reasoning can be simply summarized:” (p. 154)
- 1. “Anchor your judgment of the probability of an outcome on a plausible base rate.“
- 2. “Question the diagnosticity of your evidence.”
“Both ideas are straightforward. It came as a shock to me when I realized that I was never taught how to implement them, and that even now I find it unnatural to do so.” (p. 154)
Other Good Quotes About Outside View
“The argument for the outside view should be made on general grounds: if the reference class is properly chosen, the outside view will give an indication of where the ballpark is, and it may suggest, as it did in our case, that the inside-view forecasts are not even close to it.” (p. 248)
“This is a common pattern: people who have information about an individual case rarely feel the need to know the statistics of the class to which the case belongs. When we were eventually exposed to the outside view, we collectively ignored it.” (p. 249)
“The prevalent tendency to underweight or ignore distributional information is perhaps the major source of error in forecasting. Planners should therefore make every effort to frame the forecasting problem so as to facilitate utilizing all the distributional information that is available.” (p. 251)
“This may be considered the single most important piece of advice regarding how to increase accuracy in forecasting through improved methods. Using such distributional information from other ventures similar to that being forecasted is called taking an “outside view” and is the cure to the planning fallacy.” (p. 251)
“We consider it morally desirable for base rates to be treated as statistical facts about the group rather than as presumptive facts about individuals. In other words, we reject causal base rates.” (p. 168)
“Statistical base rates are generally underweighted, and sometimes neglected altogether, when specific information about the case at hand is available.” (p. 168)
Causal base rates are treated as information about the individual case and are easily combined with other case-specific information. (p. 168)“