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Planning Fallacy or Hiding Hand: Which Is the Better Explanation?

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  • Bent Flyvbjerg

Abstract

This paper asks and answers the question of whether Kahneman's planning fallacy or Hirschman's Hiding Hand best explain performance in capital investment projects. I agree with my critics that the Hiding Hand exists, i.e., sometimes benefit overruns outweigh cost overruns in project planning and delivery. Specifically, I show this happens in one fifth of projects, based on the best and largest dataset that exists. But that was not the main question I set out to answer. My main question was whether the Hiding Hand is "typical," as claimed by Hirschman. I show this is not the case, with 80 percent of projects not displaying Hiding Hand behavior. Finally, I agree it would be important to better understand the circumstances where the Hiding Hand actually works. However, if you want to understand how projects "typically" work, as Hirschman said he did, then the theories of the planning fallacy, optimism bias, and strategic misrepresentation - according to which cost overruns and benefit shortfalls are the norm - will serve you significantly better than the principle of the Hiding Hand. The latter will lead you astray, because it is a special case instead of a typical one.

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  • Bent Flyvbjerg, 2018. "Planning Fallacy or Hiding Hand: Which Is the Better Explanation?," Papers 1802.09999, arXiv.org.
    • Handle: RePEc:arx:papers:1802.09999
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    References listed on IDEAS

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    1. Flyvbjerg, Bent, 2005. "Measuring inaccuracy in travel demand forecasting: methodological considerations regarding ramp up and sampling," Transportation Research Part A: Policy and Practice, Elsevier, vol. 39(6), pages 522-530, July.
    2. Bent Flyvbjerg & Cass R. Sunstein, 2015. "The Principle of the Malevolent Hiding Hand; or, the Planning Fallacy Writ Large," Papers 1509.01526, arXiv.org.
    3. Flyvbjerg, Bent, 2016. "The Fallacy of Beneficial Ignorance: A Test of Hirschman’s Hiding Hand," World Development, Elsevier, vol. 84(C), pages 176-189.
    4. Bent Flyvbjerg & Allison Stewart & Alexander Budzier, 2016. "The Oxford Olympics Study 2016: Cost and Cost Overrun at the Games," Papers 1607.04484, arXiv.org.
    5. Ansar, Atif & Flyvbjerg, Bent & Budzier, Alexander & Lunn, Daniel, 2014. "Should we build more large dams? The actual costs of hydropower megaproject development," Energy Policy, Elsevier, vol. 69(C), pages 43-56.
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    1. Flyvbjerg, Bent & Ansar, Atif & Budzier, Alexander & Buhl, Søren & Cantarelli, Chantal & Garbuio, Massimo & Glenting, Carsten & Holm, Mette Skamris & Lovallo, Dan & Molin, Eric & Rønnest, Arne & Stewa, 2019. "On de-bunking “Fake News” in the post-truth era: How to reduce statistical error in research," Transportation Research Part A: Policy and Practice, Elsevier, vol. 126(C), pages 409-411.
    2. Love, Peter E.D. & Ika, Lavagnon A. & Ahiaga-Dagbui, Dominic D., 2019. "On de-bunking ‘fake news’ in a post truth era: Why does the Planning Fallacy explanation for cost overruns fall short?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 126(C), pages 397-408.

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