Base rate
Updated November 10, 2026
A base rate is the historical frequency of an outcome before new evidence—the outside view. Strong forecasts often start from the base rate, then update with case-specific information instead of anchoring on headlines alone.
US months in NBER recession are relatively rare in any long sample—a low base rate compared with guessing 50/50 on a headline shock.
Historical frequency first (see NBER recession dating), then adjust toward the market price or new data.
Guessing 50/50 on a headline shock, or replacing the base rate with narrative alone.
How to find and use a base rate
Start with a reference class: the set of past cases that resemble this one, such as every scheduled FOMC meeting, every March CPI print or every midterm election. The base rate is how often the outcome happened in that set. If it happened in 3 of 20 comparable cases (an illustrative count), the base rate is 15%, and that is the starting estimate before anything specific to this case is weighed.
Then adjust for what is different this time. New data, a change in the rules or an unusual set of candidates can each move the estimate away from 15%. Starting from history makes the size of each adjustment visible, so it’s clear how much work the new evidence is doing.
The answer depends on the class you pick. A narrow class fits the case better but has fewer past examples, so its frequency moves a lot with each new one. A broad class has more examples and fits the case less well. Checking the base rate in more than one class shows how sensitive the starting point is to that choice.
Base rate and the market price
A contract’s implied probability is a current estimate that already reflects case-specific information. The base rate is the reading before any of that. Comparing the two shows how far the price has moved from history: a contract at 40¢ on an outcome with a 15% base rate is carrying a lot of case-specific evidence, and the gap is a prompt to find out what that evidence is.
Skipping the first step has a name, base rate neglect: judging a case on how vivid its details are while ignoring how often outcomes like it occur. A dramatic headline can make a rare outcome feel close to even odds. Starting from the base rate is also one of the habits behind calibrated forecasts.
FAQ
What is a base rate in simple terms?
How often something has happened across comparable past cases. If an outcome occurred in 3 of 20 similar cases, its base rate is 15%.
What is the base rate fallacy?
Judging a specific case on its details while ignoring how common the outcome is in general. It tends to make rare outcomes look more likely than their history supports.
Is a base rate the same as a prior?
A base rate is a common choice of prior, the probability you hold before weighing case-specific evidence. A prior can come from other sources too, so the terms overlap without being identical.