What is... | October 5, 2016

What is planning fallacy?

Some people always miss deadlines, are always late and almost always underestimate the time it will take them to do something.


The tendency to believe your own project will proceed as planned even if similar tasks have run late is called planning fallacy – a term coined by Nobel prize winning psychologist Daniel Kahneman and another psychologist Amos Tversky in the 1970s.

In a famous example, planners originally estimated the iconic Sydney Opera House would be completed by 1963 at a cost of A$7 million. A scaled-down version was finally completed in 1973 for A$102 million, an entire decade later and 1,475% over budget.

The construction of the Channel Tunnel, the Great Belt link in Denmark and the Bangkok metro are all mega-infrastructure projects that have weathered similar fates. But the idea can be applied to our daily lives too. Be it filing taxes, estimating the cost of the renovation or planning for retirement we’ve all been guilty of superior planning and inferior doing. When planning something, it is easy to assume things will go perfectly. Statistically speaking, however, this is unlikely. 

In a 2003 paper, Delusions of Success, Kahneman teamed up with Dan Lovallo to expand the definition of planning fallacy. They write that planning fallacy includes the tendency to underestimate the time, costs, and risks of future actions and at the same time overestimate the benefits of the same actions.

Optimism and even overconfidence can be positive things: they can help us step out of our comfort zone and attempt larger or more difficult tasks. On the other hand, they can generate false beliefs, leading us to overrate our own abilities.

Hope makes me do it
Kahneman’s bestselling book Thinking Fast and Slow explains that optimism bias, the belief that bad things are less likely to happen to you, also manifests itself through planning fallacy. Optimism and even overconfidence can be positive things: they can help us step out of our comfort zone and attempt larger or more difficult tasks, protecting against the natural aversion to loss.

On the other hand, they can generate false beliefs, leading us to overrate our own abilities. As Kahneman writes, planning fallacy prevents you from realising how you compare to other people like you.

Just one more task
It can be tempting to try to get as much done in as little time as possible – what some people have called the ''one more task'' syndrome. The result, all too often, is underestimating the difficulty and time needed to complete a project. 

Take the outside view
One remedy is to try and be more objective – take more of an “outsider” view. One way of doing this is by using another idea originally developed by Kahneman and Tversky: reference class forecasting.

Essentially, this means comparing what happened in other similar cases in the past, and revise plans and projects accordingly. This may mean factoring in more unpredictable events such as illness or other personal problems, lack of funding, or problems coordinating different parts of a task. 

It can be tempting though to take the inside view: to think things will be different this time or that your case is unique and then just make forecasts based on the information right in front of you, finding more and more reasons for optimism.

So if you’re trying to predict how long it’s going to take you to write that essay, or get dressed and be somewhere on time, you’re much better off thinking about how long similar tasks have taken you in the past. This may be more helpful than simply focusing on how well prepared you are for this specific essay or how you’re going to catch that earlier train.

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