Planning Fallacy

What is it?

The planning fallacy, named by Daniel Kahneman and Amos Tversky, is the tendency to underestimate the time, costs, and risks of future actions, often while overestimating their benefits. It persists even when people have repeatedly seen similar projects run over. The Sydney Opera House, budgeted at around A$7 million, finally cost about A$102 million and opened a decade later than planned. The pattern recurs in construction, software development, and personal projects alike. The fallacy arises because we plan using an "inside view"—focusing on the specific case and imagining everything going to plan—rather than an "outside view" that considers how similar past projects actually went. We also underweight potential obstacles, assume tasks will proceed without delays, and fall prey to motivational biases (wanting projects to seem feasible). Reference class forecasting—looking at how long similar projects actually took—tends to improve accuracy, but requires overcoming the belief that "this time is different." Adding buffer time helps, though buffers are often too small to absorb real overruns. Good planning treats past overruns as informative rather than exceptional.