The Base Rate Fallacy: Evidence from Bank Loan Committees
Peter Chalos
This study examined differences in the utilization of loan default base
rate information between individual loan officers and committees. Base
rate utilization was examined relative to (1) the representativeness of
the financial statement information and
(2) normative accuracy as prescribed by Bayesian theory. Results indicated
that both individuals and loan committees were affected by the representativeness
of the financial statement information in their utilization of population
default rates. Neither group was more prescriptively accurate in a Bayesian
sense.
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