Hi guys, the two neglect looks the same under representativeness. What is the key difference between them? Thanks
In short:
* Base rate neglect: ignore previous calculated initial probability and put too much weight on new information
* sample size neglect: judging the effect without considering the (too small) sample size
Base rate neglect = you neglect what has been happening in the market (for example real estate sector not doing well) and once a positive article in a newspaper about real estate pops up, you neglect the real situation and you invest in RE. This is kind of the opposite to conservatism as conservatism sticks to original and doesn’t change when new info comes out however this one ignores old info and do the opposite of whats been going on.
sample size= you base your judgement on small sample size.