#15: Base rate fallacy

Bias number 15 is known as the base rate fallacy. This is a cognitive bias that affects the way people integrate information.

Here’s how it works. When people are presented with general information, or base rate information, and specific information, as in information related to a particular situation, they tend to favour the specific information and ignore the base rate information. The optimal way to consider the pieces of information would be to integrate the two.

This is present in test results in disease control, for example, where people are surprised to learn that there are often more false positives than true positives. This is called the false  positive paradox, in which the positive results are dependent upon both the accuracy of the test and the characteristics of the population being tested.

Sound familiar? Doesn’t it make you wonder just how many of those positive CV-19 results were accurate?

In psychological experiments, students were asked to estimate grade point averages of a hypothetical student. They disregarded information that looked at average grades in favour of descriptive information about the student, despite this information being irrelevant to performance.

What does this tell you? What it tells me is that human beings, once again, are shown to make decisions based on irrational, subjective, emotional information, despite what they may think.

So how might the base rate fallacy work in business?

Let’s look at how most business decisions are made. Imagine you are responsible for delivering a new initiative designed to drive cultural change. Where would you start?

You might do a bit of research to find out what other companies are doing. You might do some research to find out what consultants are proposing. You might ask your colleagues what they think. Maybe an initiative is being driven from the boardroom.

That’s all fine, but how has the need for this new initiative been determined? Are you working on anecdotal information? Are you following a trend in an effort to keep up with the other Joneses in your market sector? Are you exercising your creativity by coming up with a nifty new idea?

These are all useful things to take into consideration, but how do you know that any of them will fuel the particular cultural shifts you want to make with this initiative?

You don’t.

And this is the issue that arises when you avoid the base rate fallacy. In essence, you’re avoiding making decisions based on data in favour of making decisions based on subjective, personal criteria.

This is fine when the decision only affects you or people who share your views. It’s not OK when a decision of this magnitude affects a group of people with a variety of concerns and needs.

I’ll share a story, told to me by a colleague, that illustrates how this works. An automobile plant in the US noticed that they were experiencing high rates of absenteeism. They challenged all sorts of assumptions about management practices, team structures, length of work days and weeks, assuming that it was an issue of morale. None of the initiatives they introduced made a difference.

Then, a bright spark put forward the idea that perhaps they should ask their colleagues what was actually going on that caused so much time off work. Want to know what they discovered?

They discovered that, due to a few years of high pollen counts, people were suffering with severe cases of hay fever. By providing antihistamines and other remedies at the auto plant, on company expense, they resolved their absenteeism issue in a matter of weeks.
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The point is that by taking a data-driven approach to solving their issue of absenteeism, they were able to accurately pinpoint the cause and implement a simple but effective solution, et voila. The absenteeism problem was solved.

The question for you is this. Where are you wasting time, money and effort creating and implementing programmes or initiatives that make a marginal difference? And how might you introduce a data-driven approach to solving workplace issues or instigating cultural shifts?

If you don’t know what you’re dealing with in the first place, you cannot effectively implement change that creates a lasting impact. At best, you’ll be placing random plasters over fictional wounds while ignoring the real source of the ailment, which may not even be a wound at all.

Maybe I’m teaching Granny to suck eggs, as the saying goes, but I urge you to learn to love data. Take the time to find out what’s really going on in your organisation, and base your initiatives around data, not personal preference. Be guided by the needs of your people, not the whims of the latest fad in cultural or business transformation.
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And remember to tap into the wisdom of the people you serve. They’ll show you how to shine, if you let them.

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