The tendency to underweight statistical base rates (the actual historical frequency of outcomes) in favour of specific, vivid case information.
Deeper Explanation
When evaluating whether a startup will succeed, most people focus on the specific details of that startup — the team, the market, the product — while largely ignoring the base rate: roughly 90% of startups fail. The vivid specific information crowds out the relevant statistical frequency. For investors, base rate neglect leads to overpaying for compelling stories, underestimating how rare truly exceptional business outcomes are, and misjudging the probability of turnarounds. The correction is to always establish the reference class first: of all companies in similar situations, what fraction achieved the required outcome?
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