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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.

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