Base rate
How common something is in the whole group, before you look at any particular story. Without it, a striking example can't tell you whether something is rare or typical.
In plain English
A dozen stories about broke lottery winners sounds like a lot until you ask how many winners there are in total. The base rate is that total: the share of all cases, not of the memorable ones. Ask 'out of how many?' before reacting to any example, headline or percentage.
Uncle Gary explains
Uncle Gary is sure that '70% of lottery winners go broke'. A study of nearly 35,000 Florida winners found about 1 in 18 linked to a bankruptcy within five years. The dramatic cases were real; they just weren't the base rate.
Why it matters for your money
A handful of famous trading success stories says nothing about how many people tried the same thing and failed. The base rate is the number of people who tried.
Where we tested it
- Do Lottery Winners Really Go Broke? The 70% Statistic Nobody Can Find
- Lesson 11: Conditional Probability and Bayes, Explained With a Car Alarm
Related terms
All glossary terms. Educational content, not financial advice.