Reference-class forecasting avoids uniqueness bias

When people are emotionally invested in their project, they tend to assume it is “one of a kind” and thus, not subject to the same limitations and risks that other projects are. Flyvbjerg notes:

… in my experience and in line with the results of behavioral science, people not only tend to naturally look at their projects this way, they tend to exaggerate just how unusual their specific project really is. This is the “uniqueness bias”… We all have it. It makes us love our kids. But it’s unfortunate in some circumstances because it blinds us from seeing our project in the second way.[1]

Taking the “outside view” begins with situating the forecast within the context of other similar projects to identify a baseline for the forecast. Kahneman quotes Flyvbjerg’s summary of the planning fallacy:

The prevalent tendency to underweight or ignore distributional information is perhaps the major source of error in forecasting. Planners should therefore make every effort to frame the forecasting problem so as to facilitate utilizing all the distributional information that is available.[2]

#bias #management #cognition #psychology

See also:

  1. How Big Things Get Done – Flyvbjerg and Gardner (2023), ch. 6, § “One of Those.” He continues: “I came to call this process ‘reference-class forecasting’ (RCF). After I developed it for Gordon Brown, the British government used it to forecast the time and cost of major projects and was so satisfied with the results that it made the process mandatory. Denmark did the same. RCF has also been used in the public and private sectors in the United States, China, Australia, South Africa, Ireland, Switzerland, and the Netherlands. All that experience has enabled rigorous testing, and a slew of independent studies has confirmed that “RCF indeed performs the best,” in the words of one” (Ibid., ch. 6, § “The Outside View”). ↩︎

  2. Thinking, Fast and Slow – Kahneman (2013), ch. 23, § “Mitigating the Planning Fallacy.” ↩︎