Question

When asked to guess whether Mark is from Montana or California, you guess California because more people live in California. You have used __________ in making your decision.

Answer 1

When asked to guess whether Mark is from Montana or California, you guess California because more people live in California. You have used "base rate information" in making your decision.

What is Base Rate in Psychology?

Base rate is the frequency of a phenomenon that naturally occurs in a population. Using base rate information, rational decisions are made taking into account the general occurrence in a larger population in favour of the specific incidence in a particular case.

Effects of base rate information are-

• Base rate fallacy, as used in behavioural finance, is the propensity for people to incorrectly assess the likelihood of a situation by ignoring all pertinent information.
• Investors may instead place a greater emphasis on recent information without taking into account how this affects their initial hypotheses.

To know more about the characteristics of an annual percentage rate, here

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