Running late for work, well not late yet but cutting it fine. Luckily I can get there in under 10 minutes maybe 8 on a good run. My phone tells me it is 13 minutes to work with light traffic - but what would it know…
Of course 14 minutes later I arrive in the car park at work.
My boss wants to know when the project will be completed. I reckon I just need a good days work to get it done - lets say 3 just to be safe - no way it will take longer than that…
So why am I now working back late on the third day to get it completed? And with only a fraction of the initial scope I work I originally envisaged!
This is the curse of the planning fallacy. Coined by Kahneman and Tversky
, The planning fallacy befalls us all, as we over optimistically predict timelines, budgets and resource requirements to complete a project. All of us are familiar with government mega projects running years over plan and billions of dollars over budget. How is it that “they” could get it so wrong - EVERY TIME! Reflecting closer to home however are we any better at getting future predictions correct?
Planning focalism: ignoring past experiences in favor of present details.
Natural optimism: tending to assume that projects will go smoothly.
Motivated reasoning: making optimistic estimates because you have an incentive to do so.
The course highlights three key area where people consistently get caught out in making forecasts and plans:
The Reference Class Dilemma: difficulty in determining which reference class to use. The most comprehensive and effective strategy is called reference class forecasting. This strategy encourages you to focus on relevant past experiences while making predictions about project times and costs.
Selective Memory: excluding outliers from your reference class, or choosing only the most memorable past cases. When you’ve settled on a reference class that has lots of examples and you have to choose which ones to focus on, it can be tempting to selectively forget about the most extreme examples from your sample. “Those were unusual situations,” you might tell yourself, “and surely they won’t happen again.” Fight this impulse! It’s important that your sample doesn’t deliberately exclude unusually large or small values.
Groupthink: developing a traditional, details-based forecast with a group of collaborators. Many people are inclined to believe that making a traditional, details-based estimate in concert with others will yield a better forecast than doing so alone. This actually isn’t true—studies have shown that when groups develop project cost and time estimates collaboratively, the results are MORE likely to be biased than individual estimates, not less.
Many examples of the planning fallacy are provided in this Freakonomics blogpost
. A particularly interesting method of avoiding it comes from Amazon:
Amazon relies on an algorithm to make that forecast, and they have lots and lots of data going into that algorithm, because they’ve literally solved this problem probably billions of times before. That is exactly how we cure the planning fallacy. We use data instead of human judgment to make forecasts, and then we don’t have this problem anymore.
More detailed study of the planning fallacy was conducted by Buehler, Griffin and Ross
who demonstrated through their study that the bias becomes less pronounced when you estimate the time required for someone else’s project, and also when you have a firm deadline to hit. So this suggests the way forward is to assign yourself a unmovable delivery date and pretend you are estimating how long it will take someone else to complete the same project!
While people are notoriously poor at guessing when they’ll finish their own projects, they’re pretty good at guessing about other people. In fact, the planning fallacy embodies a broader principle. When people are forced to look at similar situations and see the frequency of success, they tend to predict more accurately. If you want to know how something is going to turn out for you, look at how it turned out for others in the same situation. Daniel Gilbert, a psychologist at Harvard University, ponders why people don’t rely more on the outside view, “Given the impressive power of this simple technique, we should expect people to go out of their way to use it. But they don’t.” The reason is most people think of themselves as different, and better, than those around them.
(Ref - “Think Twice - Harnessing the power of Counterintuition” - Michael Maubooussin)
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