Our weekly explainer on economics using lessons from popular culture. In Installment 39, The Rolling Stones commit the Planning Fallacy.
The Rolling Stones are true musical legends, having created some of the finest blues rock records ever. I particularly love the song ‘Time is On My Side’.
That said, the Stones do commit a fallacy in this song: the Planning Fallacy.
Time is on my side, yes it is.
Time is on my side, yes it is.
Now you all were saying that you want to be free,
But you’ll come runnin’ back (I said you would baby),
You’ll come runnin’ back (like I told you so many times before),
You’ll come runnin’ back to me.
Roger Buehler, a professor of psychology, defines the Planning Fallacy:
A tendency to underestimate the time it will take to complete a project while knowing that similar projects have typically taken longer in the past. So it’s a combination of optimistic prediction about a particular case in the face of more general knowledge that would suggest otherwise.
As experience would have it, Mick and his mates are indeed quite optimistic about the estranged lover coming runnin’ back.
The term Planning Fallacy was coined by the psychologist duo Amos Tversky and Daniel Kahneman. The reason behind such rose-coloured glasses is that human cognition suffers with a strong Optimism Bias, and a powerful tendency that makes individuals believe they are above average in their abilities. Such a bias is ubiquitous and can be seen in many human actions.
Much to our dislike, most of us are disposed to committing the Planning Fallacy. Let there be a silent prayer to missed deadlines, take-home work pile that remains untouched, and that bumped-up list of commitments one imagines meeting. Underestimating time required for completing tasks, both personal and professional, is a routine affair for most individuals.
We not just underestimate time, but also overestimate the benefit accruing from the completion of tasks. Such benefits are based on future predictions with the probability of success wrongly estimated due to an Optimism Bias.
The Planning Fallacy has some serious ramifications when institutionalized. Institutions are made up of individuals who decide for collectives, and the consequences of such decisions are borne by all its members.
For instance, most movie productions suffer from cost overruns. James Cameroon’s movie Titanic reportedly exceeded its budget of $110 million to more than $200 million. The consequence of failing to contain cost and time over-runs in movie production leads to a severe pressure on obtaining high box office sales.
Another infamous instance is that of the Boeing 787 Dreamliner aircraft. The program was completed only with a 430% cost overrun and a three-year time over-run.
Public works are the most “out there” examples of the Planning Fallacy, with outrageous cost and time overruns. Below are the top 10 megaprojects worldwide with the largest percentage of cost overruns:
Governments across the world are embodiments of the Planning Fallacy with timely completion of public works being a rarity. A World Bank study of transportation infrastructure projects in twenty countries across five continents found that nine out of ten projects have cost overruns. Surely no government can justify the wastage of this money obtained by emptying the wallets of taxpayers.
With missing transparency and accountability such cost overruns are coupled with grotesque instances of rent-seeking and corruption.
The Delhi Common Wealth Games held in 2010 is a paramount example. As per CAG’s report in 2010 the entire project faced a cost-overrun of about 1500% from the original budget (INR 12 billion to INR 185 billion).
The Planning Fallacy, like most other cognitive biases, can be conquered. It can be undone by taking the “outside view” while drawing plans. The technical speak for such outside view is a reference-class forecast which requires an individual to look back at all similar projects, and evaluate the deviation of actual time taken from that planned. Repeating this over and over takes us further away from committing the fallacy.
Mick and the fellas, you piss a girl off? She ain’t coming running back. Time is definitely not on your side.
Confession: It took me longer to write this piece than I had planned. A taste of your own medicine, I suppose.