In the TV series, Game of Thrones, the character Jon Snow, is the son of rulers.
Therefore, he has royal blood.
But he doesn’t know that for some time.
This detail is vital in the plot of the entire series.
Jon Snow’s character is played by actor Kit Harington.
Many don’t know that Kit is a royal descendant in real life. He actually has royal blood.
He is a descendant of King Charles II of England (grandmother’s side).
Kit Harington’s isn’t a rare case.
Many famous celebrities in the west are royal descendants: Angelina Jolie, Johnny Depp, Madonna, Hillary Duff, Beyonce, and several others.
Why?
Are people are royal descendants better at acting or performing?
Or does this show some kind of privilege that makes it easier for people of royal descent to pursue such careers?
The truth might be something else altogether.
If you go to any state capital, what are the chances that you’ll meet the chief minister or one of his/her immediate family members?
That’s literally a couple of people in a city of millions. The chances are extremely low.
This is why we imagine meeting a person from a royal background is incredibly rare.
Over hundreds of years, kings and queens have had many children. Those children have gone on to have numerous children of their own. On and on.
There are thousands of people today who can trace some link to a royal person a few hundred years ago.
So unlike a king and queen, the number of people with royal links is actually quite high.
Base Rate Fallacy
We all have a tendency to ignore the base rate or original number in any case. Or, of taking the wrong number as the base rate.
This is a problem all too common in economics, investing, and our daily lives in general.
One classic example has become famous because of Daniel Kahneman.
Here is one variation of the example:
In a university, there are 95 students studying in the arts streams and 1100 students studying in the engineering streams.
We take one person from this university.
He’s wearing a white shirt with pink and red flowers on it, has a neatly trimmed beard, and hair till his shoulders.
Does this person study in the arts stream or the engineering stream?
Most people in these experiments answered arts stream based on the description of the person.
This is base rate fallacy.
The number of engineers (base rate) is so high compared to the art students, that chances are higher that the person described is actually an engineer.
Whenever we make any calculation, we tend to give great importance to some numbers and less importance to others.
This is okay as long as we ignore the less relevant numbers.
But we won’t always do that.
Base rate fallacy is us giving less importance to a number that deserves more importance.
In India:
Passenger vehicles in 2020-21: 2.70 lakh
Passenger vehicles in 2021-22: 3.69 lakh
That’s an increase of over 35%. Great!
This is a classic case of low base error.
In 2020-21, due to the lockdowns, very few vehicles were sold. This is why the jump from 2020-21 to 2021-22 seems so good.
If we compare the numbers from the pre-pandemic era, the sales are still lower!
Also, base rate fallacy often occurs not because someone is not looking at the base number - but because they are looking at the wrong base number.
Or, they are looking at a base number that is too narrow and lacks depth.
This was true for all sorts of numbers: revenue, profits, sales, GDP, employment, and so on.
Even as investors, we love obsessing over the returns given by an FD, or by a mutual fund, or something else.
We don’t realize the impact of the original investment amount.
Yes, to some this will sound incredibly obvious and basic. But there are enough who simply don’t realize it.
Getting a high rate of return is good. Investing a high amount to start with is even better.
Always make sure to look at the base, not just the growth figures.