No.8 of 36 Base Rate Fallacy

No.8 of 36 Base Rate Fallacy

A phenomenon known as base rate fallacy illustrates how people can sometimes jump to inappropriate conclusions, with significant consequences.

Base rate fallacy, or base rate neglect, is the tendency for people to mistakenly judge the likelihood of a situation by not taking into account all relevant data. Don't think "99% accurate" means a 1% failure rate. There's far more to think about before you can work out the failure rate.

Lots of brands exploit the Base Rate Fallacy on their packaging. When something says "50% extra free," only a third (33%) of what you're looking at is free. If you think half of what you're looking at is free, then you've committed the Base Rate Fallacy.

For example, when you buy six cans of Coke labelled "50% extra free," only two of the cans are free, not three. (It's because the original pack had four cans, and 50% of the original amount is two cans.) If you thought three of the cans were free, then you failed to account for an earlier premise (i.e., there were four cans originally), and you committed the Base Rate Fallacy.

There are a lot of opportunities relating to base rate fallacy in-store and online. But you need to be careful not to confuse shoppers or have them distrust you.

  1. Whiter than white: it's better to be honest and true, but unfortunately, much in-store promotional activity exploits base rate fallacy. So instead of you appearing to offer a weaker deal (because you are too honest), highlight where your competitors are exploiting this bias.
  2. Don’t be too white: if there is a better way to communicate number or brand aspects then do so. In other words, being totally honest is good, but don’t be over-honest. Communicate with shoppers in the most effective but ethical ways possible, utilising base rate fallacy for good, not bad.
  3. Base rate in context: provide shoppers with context so that your base rate examples look as attractive and appealing as possible. For example, “Buy 3 get 1 free” Whisper buy 3 (that’s the instruction or order) and shout get 1 free.

Due to the current accountant lead nature of retail, base rate fallacy is a very, very big opportunity and potential problem. Examine the numbers you communicate to shoppers and then look at then in relation to base rate fallacy. Could you be doing things better? Are you misleading shoppers?

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About Phillip Adcock

My name is Phillip Adcock: I have more than 30 years of human behavioural research and analysis, and have developed a unique ability to identify what it is that makes people psychologically and physiologically 'tick'.

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Phillip Adcock
Psychology & Behaviour
Change Consultant

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