prior distribution

Baseline Expectation

Initial assumptions set the scale for how much weight to give to new evidence. If the prior distribution for success in a high-risk sector is low, the founder needs more positive signals to change their outlook than they would in a stable market.

Starting Density

Distribution of potential outcomes at the beginning of a project shows the range of possible futures. A wide prior distribution indicates high uncertainty, while a narrow one suggests that the environment is well-understood. This starting point is the before state in the measurement of learning over the life of a company.

It acts as a control against which all subsequent findings are measured to see how much the needle has actually moved.

Historical Context

Past performance of similar entities provides the most reliable data for this initial setting. The prior distribution is an anchor that prevents the founder from overreacting to the first piece of good or bad news they receive.