A practical guide to the use of success versus failure statistics in the estimation of prospect risk

Statistical data documenting past exploration success and failure can be used to inform the estimate of future chance of success, but this is not appropriate to every situation. Even where appropriate, past frequency is not numerically equivalent to future expectation unless the sample size is very large. Using the Rule of Succession of Laplace (1774), we calculate the appropriate predicted chance of future success that can be used for smaller sample numbers, typical of exploration data sets, which include both successes and failures. The results, presented as a simple look-up table, show that the error which would result from using simple frequency instead of the appropriately calculated value is particularly severe for small samples (>10% error arising if n< 9). This error is least if past success rate is close to 0.5 but it increases markedly if the past data consist of mostly failure or mostly success. We review the conditions in which past frequency can be used as a guide, and the circumstances in which it does not reflect future chance. Past success frequency should only be used as a guide to future chance if the past tests and future opportunities belong to the same play, and are similar as far as the available data allow. They should not be used if the historical tests have selectively sampled the “cream” of the pool of opportunities.