The base rate is a prediction based on prior data and probabilities, absent of information specific to a particular case. In transactions, the base rate is the likelihood that a transaction will close without considering the perceived probability of the specific transaction in mind. Statistical facts seldom come into consideration in decision-making. Instead, management tends to make big decisions based on little or no information and leap from little information to big conclusions. In our experience, management will almost always neglect to take the base rate into account and, as such, decisions are exposed to additional risk to closing. Base rates should be dominant in management’s thinking and their beliefs should be constrained by the logic of probability.
A simple statistical reality is that large samples are more precise than small samples, and small samples yield extreme results...
