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OPINION7 April 2015

Bias in the spotlight: optimism bias

Opinion UK

In the third in a series of blogs exploring different behavioural economic biases, Crawford Hollingworth looks at the optimism bias.

The optimism bias describes our tendency to overestimate our likelihood of experiencing good events in our lives, and underestimate the likelihood of suffering negative events in our lives. More simply, people think they’ll be luckier than they are likely to be. Neuroscientists estimate that 80% of us are affected by optimism bias to some degree.

Related to optimism bias is the planning fallacy. The planning fallacy is a tendency for people and organisations to underestimate how long they will need to complete a task. Researchers investigating the planning fallacy among students found that, when students were asked by what date they were 99% certain they would finish their project, only 45% actually finished by the date they had suggested.

It’s not just students who are susceptible

  • Denver’s new International Airport opened 16 months late, at a cost overrun of $2 billion (with some estimates as high as $3.1 billion over budget). 
  • The Eurofighter Typhoon, a joint defence project of several European countries, was delivered over four years late at a cost of £19 billion instead of £7 billion. 
  • The Sydney Opera House may be the most legendary construction overrun of all time, originally estimated to be completed in 1963 for $7 million, and finally completed in 1973 for $102 million.

There are strategies to minimise susceptibility to the planning fallacy

Knowing that the Olympic games typically come in way over budget, the UK Treasury insisted that the budget for the London 2012 games be revised to include a £2.8 billion contingency fund – calculated by a formula that recommended including contingencies for 60% of the original budget – to adjust for unrealistic optimism. The result was that the final bill for the London Olympics totalled £8.92 billion, an impressive £377 million under the original estimated budget of £9.28 billion; meaning that there was some money left over at the end and making London 2012 the first Olympics ever to cost less than expected.

Why are people so staggeringly optimistic? A clue to the underlying problem can be found in another study, which found that asking people either for their predictions based on realistic “best guess” scenarios; or for their hoped-for “best case” scenarios produced indistinguishable results.

Crawford Hollingworth is founder of The Behavioural Architects

@RESEARCH LIVE

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