reference-class-forecasting

---
name: reference-class-forecasting
description: Anchors predictions in historical reality by identifying a class of similar past events and using their statistical frequency as a baseline (outside view) before analyzing case-specific details. Use when starting a forecast, establishing base rates, testing "this time is different" claims, or when user mentions reference classes, outside view, base rates, or starting a new prediction.
---

# Reference Class Forecasting

## Table of Contents
- [Interactive Menu](#interactive-menu)
- [Quick Reference](#quick-reference)
- [Resource Files](#resource-files)

---

## Interactive Menu

**What would you like to do?**

### Core Workflows

**1. [Find My Base Rate](#1-find-my-base-rate)** - Identify reference class and get statistical baseline
- Guided process to select correct reference class
- Search strategies for finding historical frequencies
- Validation that you have the right anchor

**2. [Test "This Time Is Different"](#2-test-this-time-is-different)** - Challenge uniqueness claims
- Reversal test for uniqueness bias
- Similarity matching framework
- Burden of proof calculator

**3. [Calculate Funnel Base Rates](#3-calculate-funnel-base-rates)** - Multi-stage probability chains
- When no single base rate exists
- Sequential probability modeling
- Product rule for compound events

**4. [Validate My Reference Class](#4-validate-my-reference-class)** - Ensure you chose the right comparison set
- Too broad vs too narrow test
- Homogeneity check
- Sample size evaluation

**5. [Learn the Framework](#5-learn-the-framework)** - Deep dive into methodology
- Read [Outside View Principles](resources/outside-view-principles.md)
- Read [Reference Class Selection Guide](resources/reference-class-selection.md)
- Read [Common Pitfalls](resources/common-pitfalls.md)

**6. Exit** - Return to main forecasting workflow

---

## 1. Find My Base Rate

**Let's establish your statistical baseline.**

### Step 1: What are you forecasting?
Tell me the specific event or outcome you're predicting.

**Example prompts:**
- "Will this startup succeed?"
- "Will this bill pass Congress?"
- "Will this project launch on time?"

---

### Step 2: Identify the Reference Class

I'll help you identify what bucket this belongs to.

**Framework:**
- **Too broad:** "All companies" → meaningless
- **Just right:** "Seed-stage B2B SaaS startups in fintech"
- **Too narrow:** "Companies founded by people named Steve in 2024" → no data

**Key Questions:**
1. What type of entity is this? (company, bill, project, person, etc.)
2. What stage/size/category?
3. What industry/domain?
4. What time period is relevant?

I'll work with you to refine this until we have a specific, searchable class.

---

### Step 3: Search for Historical Data

I'll help you find the base rate using:
- **Web search** for published statistics
- **Academic studies** on success rates
- **Government/industry reports**
- **Proxy metrics** if direct data unavailable

**Search Strategy:**
```
"historical success rate of [reference class]"
"[reference class] failure statistics"
"[reference class] survival rate"
"what percentage of [reference class]"
```

---

### Step 4: Set Your Anchor

Once we find the base rate, that becomes your **starting probability**.

**The Rule:**
> Treat this base rate as your starting point. Adjust only when you have specific,
> evidence-based reasons from your "inside view" analysis.

**Default anchors if no data found:**
- Novel innovation: 10-20% (most innovations fail)
- Established industry: 50% (uncertain)
- Regulated/proven process: 70-80% (systems work)

**Next:** Return to [menu](#interactive-menu) or proceed to inside view analysis.

---

## 2. Test "This Time Is Different"

**Challenge uniqueness bias.**

When someone (including yourself) believes "this case is special," we need to stress-test that belief.

### The Uniqueness Audit

**Question 1: Similarity Matching**
- What are 5 historical cases that are most similar to this one?
- For each, what was the outcome?
- How is your case materially different from these?

**Question 2: The Reversal Test**
- If someone claimed a different case was "unique" for the same reasons you're claiming, would you accept it?
- Are you applying special pleading?

**Question 3: Burden of Proof**
The base rate says [X]%. You claim it should be [Y]%.

Calculate the gap: `|Y - X|`

**Required evidence strength:**
- Gap < 10%: Minimal evidence needed
- Gap 10-30%: Moderate evidence needed (2-3 specific factors)
- Gap > 30%: Extraordinary evidence needed (multiple independent strong signals)

### Output

I'll tell you:
1. Whether "this time is different" is justified
2. How much you can reasonably adjust from the base rate
3. What evidence would be needed to justify larger moves

**Next:** Return to [menu](#interactive-menu)

---

## 3. Calculate Funnel Base Rates

**For multi-stage processes without a single base rate.**

### When to Use
- No direct statistic exists (e.g., "success rate of X")
- Event requires multiple sequential steps
- Each stage has independent probabilities

### The Funnel Method

**Example: "Will Bill X become law?"**

No direct data on "Bill X success rate," but we can model the funnel:

1. **Stage 1:** Bills introduced → Bills that reach committee
   - P(committee | introduced) = ?

2. **Stage 2:** Bills in committee → Bills that reach floor vote
   - P(floor | committee) = ?

3. **Stage 3:** Bills voted on → Bills that pass
   - P(pass | floor vote) = ?

**Final Base Rate:**
```
P(law) = P(committee) × P(floor) × P(pass)
```

### Process

I'll help you:
1. **Decompose** the event into sequential stages
2. **Search** for statistics on each stage
3. **Multiply** probabilities using the product rule
4. **Validate** the model (are stages truly independent?)

### Common Funnels
- Startup success: Seed → Series A → Profitability → Exit
- Drug approval: Discovery → Trials → FDA → Market
- Project delivery: Planning → Development → Testing → Launch

**Next:** Return to [menu](#interactive-menu)

---

## 4. Validate My Reference Class

**Ensure you chose the right comparison set.**

### The Three Tests

**Test 1: Homogeneity**
- Are the members of this class actually similar enough?
- Is there high variance in outcomes?
- Should you subdivide further?

**Example:** "Tech startups" is too broad (consumer vs B2B vs hardware are very different). Subdivide.

---

**Test 2: Sample Size**
- Do you have enough historical cases?
- Minimum: 20-30 cases for meaningful statistics
- If N < 20: Widen the class or acknowledge high uncertainty

---

**Test 3: Relevance**
- Have conditions changed since the historical data?
- Are there structural differences (regulation, technology, market)?
- Time decay: Data from >10 years ago may be stale

### Validation Checklist

I'll walk you through:
- [ ] Class has 20+ historical examples
- [ ] Members are reasonably homogeneous
- [ ] Data is from relevant time period
- [ ] No major structural changes since data collection
- [ ] Class is specific enough to be meaningful
- [ ] Class is broad enough to have data

**Output:** Confidence level in your reference class (High/Medium/Low)

**Next:** Return to [menu](#interactive-menu)

---

## 5. Learn the Framework

**Deep dive into the methodology.**

### Resource Files

📄 **[Outside View Principles](resources/outside-view-principles.md)**
- Statistical thinking vs narrative thinking
- Why the outside view beats experts
- Kahneman's planning fallacy research
- When outside view fails

📄 **[Reference Class Selection Guide](resources/reference-class-selection.md)**
- Systematic method for choosing comparison sets
- Balancing specificity vs data availability
- Similarity metrics and matching
- Edge cases and judgment calls

📄 **[Common Pitfalls](resources/common-pitfalls.md)**
- Base rate neglect examples
- "This time is different" bias
- Overfitting to small samples
- Ignoring regression to the mean
- Availability bias in class selection

**Next:** Return to [menu](#interactive-menu)

---

## Quick Reference

### The Outside View Commandments

1. **Base Rate First:** Establish statistical baseline BEFORE analyzing specifics
2. **Assume Average:** Treat case as typical until proven otherwise
3. **Burden of Proof:** Large deviations from base rate require strong evidence
4. **Class Precision:** Reference class should be specific but data-rich
5. **No Narratives:** Resist compelling stories; trust frequencies

### One-Sentence Summary

> Find what usually happens to things like this, start there, and only move with evidence.

### Integration with Other Skills

- **Before:** Use `estimation-fermi` if you need to calculate base rate from components
- **After:** Use `bayesian-reasoning-calibration` to update from base rate with new evidence
- **Companion:** Use `scout-mindset-bias-check` to validate you're not cherry-picking the reference class

---

## Resource Files

📁 **resources/**
- [outside-view-principles.md](resources/outside-view-principles.md) - Theory and research
- [reference-class-selection.md](resources/reference-class-selection.md) - Systematic selection method
- [common-pitfalls.md](resources/common-pitfalls.md) - What to avoid

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**Ready to start? Choose a number from the [menu](#interactive-menu) above.**