An Economic Model of the Planning Fallacy
National Bureau of Economic Research, 2008 - Planning - 39 pages
People tend to underestimate the work involved in completing tasks and consequently finish tasks later than expected or do an inordinate amount of work right before projects are due. We present a theory in which people underpredict and procrastinate because the ex-ante utility benefits of anticipating that a task will be easy to complete outweigh the average ex-post costs of poor planning. We show that, given a commitment device, people self-impose deadlines that are binding but require less smoothing of work than those chosen by a person with objective beliefs. We test our theory using extant experimental evidence on differences in expectations and behavior. We find that reported beliefs and behavior generally respond as our theory predicts. For example, monetary incentives for accurate prediction ameliorate the planning fallacy while incentives for rapid completion aggravate it.
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accurate prediction agent anagram anticipatory benefits anticipatory utility Ariely and Wertenbroch asking subjects average predicted behavioral economics beliefs and behavior bias biased binding deadline Buehler Byram choice of deadline choose a deadline comparative statics complete the task correlation costs decrease disutility Econometrica equally-spaced deadlines Euler equation ex post exhibit the planning experimental evidence function for beliefs future Griffin imposes a deadline incentives for rapid intermediate deadline Kahneman and Tversky laboratory experiment Laibson MacDonald 1997 memory utility misestimation of task misplanning model predicts modified problem nomic objective function objective probabilities observing optimal beliefs optimal deadline optimistic beliefs origami original problem overconfidence paper person chooses planning fallacy poor smoothing predicted completion procrastination Proof of Proposition Psychology quartile rapid completion rational rational expectations reported beliefs Ross second period Section self-imposed deadlines Social Discount Rate Social Psychology solutions subjective beliefs task completion theory utility flow utility function Varf variation Wertenbroch 2002