Browsing through Daniel Kahneman’s Thinking, Fast and Slow,[1] I came across two related sections that attracted my attention. Both deal with planning associated with construction, a subject close to my heart. The first section deals with the “planning fallacy,” and the following one concerns its mitigation.[2] As an example of the former, he offers the Scottish Parliament building, which ended up costing nearly eleven times the original estimate. A big boo-boo, no doubt. But then he mentions that original estimates are often low so as to ensure that the project gets through the initial assessment process. In addition, he points out that contractors love low estimates because they make money on subsequent additions. In short, the so-called planning fallacy looks like a combination of something that is better called the “planning ruse” and tacit collusion between planners and contractors. By way of mitigation, Kahneman argues that the best way to get a good estimate is by collecting data on similar projects and their ultimate costs rather than original estimates. This results in a planning contingency or budget reserve for all the unforeseen events. However, he also adds that contractors love such contingencies, which they are liable to get hold of as the project evolves. The mitigation therefore hardly deserves its lofty name. It could be called the “mitigation ruse” instead. Once again, it smacks of tacit collusion between planners and contractors. Unfortunately, Kahneman remains oblivious to these two problems with his own argument. Together, they can be dubbed the Kahneman fallacy. And he is a winner of the Nobel prize in economics, of all things.

Footnotes

1. New York, Farrar, Straus, and Giroux, 2011.

2. Op. cit., pp. 249-252.