Thinking, Fast and Slow

by Daniel Kahneman

The diagnosis of and the remedy for the planning fallacy have not changed since that Friday afternoon, but the implementation of the idea has come a long way. The renowned Danish planning expert Bent Flyvbjerg, now at Oxford University, offered a forceful summary: 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. This may be considered the single most important piece of advice regarding how to increase accuracy in forecasting through improved methods. Using such distributional information from other ventures similar to that being forecasted is called taking an “outside view” and is the cure to the planning fallacy. The treatment for the planning fallacy has now acquired a technical name, reference class forecasting, and Flyvbjerg has applied it to transportation projects in several countries. The outside view is implemented by using a large database, which provides information on both plans and outcomes for hundreds of projects all over the world, and can be used to provide statistical information about the likely overruns of cost and time, and about the likely underperformance of projects of different types. The forecasting method that Flyvbjerg applies is similar to the practices recommended for overcoming base-rate neglect: Identify an...