Daniel Kahneman & Dan Lovallo

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1. 01

   Before judging a case by its details, ask how similar cases ended: the base rate is the starting point, and the details only adjust it.

   Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking · 1993

   The base rate is the starting point, and the details of the case are only allowed to adjust it.

   Kahneman and Lovallo start from an anecdote. A team writing a school curriculum was estimating when it would finish. Asked how comparable teams had fared, the group's own expert admitted that about 40% had given up and none had finished in under seven years. Everyone had spontaneously taken the inside view: the plan, the obstacles, the scenario. The outside view ignores the details and asks what happened across a class of cases similar in relevant respects. The authors' point is that, applied with equal skill, the outside view is far more likely to yield a realistic estimate. The steps: choose a reference class of similar cases; find the distribution of outcomes, the base rate; place your case within that distribution, asking why it should do better or worse than average; only then adjust, moderately, for the specifics. It applies to any estimate of duration, cost or chance of success — how long coalition talks last, how often sanctions change a regime's behaviour. The trap is a reference class chosen to deliver the answer you wanted, or the claim that ‘our case is unique’, which the authors describe as the almost moral preference for the inside view.

   “In contrast, the outside view is essentially statistical and comparative, and involves no attempt to divine future history at any level of detail.”

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