Base Rate
A base rate is the historical or general frequency with which a type of event occurs before considering the specific details of the current case.
Why it matters to you
Base rates provide a useful starting point for probability estimates. If an event historically occurs only 10% of the time under comparable conditions, estimating an 80% probability today requires strong evidence explaining why this situation is different. Ignoring base rates can lead traders to overweight an exciting narrative or recent information.
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