Explaining base rate neglect
In a seminar for a team from an investment manager I described how base rates are often neglected when people are grappling with conditional probabilities. My description was somewhat confusing, so the below is a short write-up for the participants.
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Consider the following question scenario.
You test yourself with a rapid antigen test for COVID-19. The following information is known:
The probability that a person has COVID-19 is 1% (the prevalence).