Base Rate

Before examining any case-specific evidence, a skilled forecaster first asks: how often does this type of event occur? That historical frequency is the base rate. In a Prediction Market, setting a starting price without consulting the base rate is like placing a bet with no research. If 15% of Senate incumbents lose re-election in a typical cycle, that 15% is your Prior Probability before you consider polling data, fundraising totals, or candidate quality. Good Judgment Project research found that top forecasters rely more heavily on base rates than their peers, using them as anchors and then adjusting rather than building estimates purely from the specific case up.

The base rate fallacy is the systematic tendency to ignore background frequency in favor of vivid, narrative information. Someone told a compelling story about a company may assign it a very high success probability even when the base rate for that industry is below 10%. In prediction markets, this bias can create exploitable mispricings that sharp traders correct. The harder problem is reference class selection: which comparison group best represents the current situation? Choosing the right class requires judgment, since different valid classes can produce very different base rates. This uncertainty is why base rates inform prior probabilities rather than replacing careful reasoning, with final estimates emerging as posterior probabilities after evidence is weighed.