Planning fallacy confuses “best-guess” with “best-case” scenario

The planning fallacy occurs when people tend to default to optimism and see as unnecessarily delaying progress and hindering their bias for action, which leads them to inaccurately estimate the speed and cost of achieving the desired outcome: their “best guess” becomes essentially the “best case.”

Forty years ago, Kahneman and Tversky showed that people commonly underestimate the time required to complete tasks even when there is information available that suggests the estimate is unreasonable. They called this the “planning fallacy,” a term that with Harvard law professor Cass Sunstein I have also applied to underestimates of cost and overestimates of benefits… When people are asked to make a “best-guess” scenario—the scenario most likely to occur—what they come up with is generally indistinguishable from what they settle on when asked for a “best-case” scenario.^[1]

Kahneman observes:

When forecasting the outcomes of risky projects, executives too easily fall victim to the planning fallacy. In its grip, they make decisions based on delusional optimism rather than on a rational weighting of gains, losses, and probabilities. They overestimate benefits and underestimate costs. They spin scenarios of success while overlooking the potential for mistakes and miscalculations. As a result, they pursue initiatives that are unlikely to come in on budget or on time or to deliver the expected returns—or even to be completed.^[2]

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