Base Rate Neglect(or)

In Thinking Fast and Slow, Daniel Kahneman writes about the planning fallacy. He’s in a group of professors tasked with writing a textbook. Each proposes a timeline. Each is confident. These are well-established professors after all.

But then Kahneman asks a group member who actually contributed to a textbook: How long did that take? Hmm, he thinks, never less than our longest guess.

It’s a ‘textbook’ planning fallacy. We error to optimism. Michael Mauboussin thinks of a home remodel. The neighbor’s project has delays and cost overruns but ours?

I know this. I’ve written about this for more than seven years. I make this mistake.

Our daughter’s high school is planning choir trips. The possibilities include Pigeon Forge, New York City, and Northeast Ohio.

Ohio, I exclaimed, that really stands out.

Yeah, my oldest said, we might go to Cedar Point.

Cedar Point? That’s awesome! How is that on your teacher’s radar?

Maybe, my wife said, he’s from Ohio or a member of the coaster club.

Oh, I said, If you’re going to Cedar Point I bet he’s a member of a coaster club.

I started with my inside view. Another approach is starting with the outside information and shifting from there: Kahneman’s textbook author, Mauboussin’s neighbor.

I grew up in Cedar Point. We know people in coaster clubs. That was my inside information. Upon inspection, it looks like <10,000 people are members of such clubs.

But 16,000-30,000 people leave Ohio for Florida each year.

Thinking in base rates (or like Fermi) prevents my error. Are there more people from Ohio who move to Florida than people in coaster clubs?

Change the framing, change the process.

I can still hear the ‘thank you for visiting America’s roller coast’ before clacking up the Magnum hill, feeling excited, enjoying the view and the breeze, marveling that something so tall can be so narrow, and feeling my stomach lift through my torso.

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