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. People routinely ignore base rates in favor of a vivid narrative, which is how investors talk themselves into long-shot bets. Anchoring on the base rate first keeps expectations honest.
For example
Most actively managed funds underperform the index over 15 years — that base rate should temper your confidence before you pick "the one" that will beat it.
Base rate is taught hands-on in Stage 12 — Investor Psychology: FOMO, Panic & Biases.
See the lesson →