Investing term
What is Base rate?
The long-run average probability of an event, before you weight any recent evidence.
A base rate is the long-run average frequency of an outcome across all similar cases — the statistical starting point before you weight any specific story. If most start-ups fail, or most active funds trail the index, that failure rate is the base rate you should begin from when judging any new example.
People routinely ignore base rates in favour of a vivid, specific narrative — 'but this start-up is different' — which is how investors talk themselves into long-shot bets that the odds quietly argue against. Anchoring on the base rate first keeps expectations honest: it forces you to ask whether the exciting story in front of you really justifies overriding what usually happens. Most of the time, the boring average is a better guide than the compelling exception.
A base rate is the plain long-run frequency — most start-ups fail. A vivid story tempts you to ignore it and bet on the rare exception. Start from the odds, and demand real evidence to depart.
For example
Sold on a thrilling pitch, you forget that most start-ups fail — the base rate — and weight the vivid story far more than the sobering odds it's fighting against.
Learn it by doing
That's Base rate in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 12, Investor Psychology: FOMO, Panic & Biases).
Try the free lesson →Why it matters to you
Base rates matter because they're the honest baseline the mind loves to skip. A specific, dramatic story feels more informative than a dull statistic, but the base rate usually predicts better — most exciting exceptions turn out ordinary. Starting from the base rate and demanding real evidence before departing from it guards against overpaying for hype, chasing long shots, and mistaking a good narrative for good odds.
⚠ Believing 'this one is different'
The base rate says most examples of a thing end a certain way, but a compelling story tempts you to treat your case as the exception. Occasionally it is — but far less often than it feels. Assuming 'this one is different' without strong evidence is how investors override the odds and lose. Start from the base rate and demand real reasons to depart from it.