Base-rate neglect and demotion of historical data that might tell a different story

It probably happens all the time. Someone asks a lawyer for an estimate and the lawyer recalls a few instances but doesn’t look at any metrics. Say a client asks a lawyer to estimate the amount of damages or settlement the client might end up paying for a breach or some other legally aggressive action. The lawyer remembers the results of one or two high profile dispositions that resulted and gives an answer, but never looks at a broader set of data from a matter management system or another source of (See my post of March 13, 2006: verdict and settlement database; and April 23, 2006: metrics on claims that result in litigation.).

Decision researchers call this “base-rate neglect,” the tendency to slight statistical information from a large set of instances and to give excessive weight to memorable, case-specific information in making predictions. Statistical generalizations take time and effort to develop, but they avoid this fallacy of decision making based on selective information.

We welcome comments

Your email address will not be published. Required fields are marked *