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Regression to the Tail: Why the Olympics Blow Up

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  • Bent Flyvbjerg
  • Alexander Budzier
  • Daniel Lunn

Abstract

The Olympic Games are the largest, highest-profile, and most expensive megaevent hosted by cities and nations. Average sports-related costs of hosting are $12.0 billion. Non-sports-related costs are typically several times that. Every Olympics since 1960 has run over budget, at an average of 172 percent in real terms, the highest overrun on record for any type of megaproject. The paper tests theoretical statistical distributions against empirical data for the costs of the Games, in order to explain the cost risks faced by host cities and nations. It is documented, for the first time, that cost and cost overrun for the Games follow a power-law distribution. Olympic costs are subject to infinite mean and variance, with dire consequences for predictability and planning. We name this phenomenon "regression to the tail": it is only a matter of time until a new extreme event occurs, with an overrun larger than the largest so far, and thus more disruptive and less plannable. The generative mechanism for the Olympic power law is identified as strong convexity prompted by six causal drivers: irreversibility, fixed deadlines, the Blank Check Syndrome, tight coupling, long planning horizons, and an Eternal Beginner Syndrome. The power law explains why the Games are so difficult to plan and manage successfully, and why cities and nations should think twice before bidding to host. Based on the power law, two heuristics are identified for better decision making on hosting. Finally, the paper develops measures for good practice in planning and managing the Games, including how to mitigate the extreme risks of the Olympic power law.

Suggested Citation

  • Bent Flyvbjerg & Alexander Budzier & Daniel Lunn, 2020. "Regression to the Tail: Why the Olympics Blow Up," Papers 2009.14682, arXiv.org.
  • Handle: RePEc:arx:papers:2009.14682
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    References listed on IDEAS

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    1. Benoit Mandelbrot, 1963. "New Methods in Statistical Economics," Journal of Political Economy, University of Chicago Press, vol. 71, pages 421-421.
    2. 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.
    3. Nassim Nicholas Taleb, 2020. "Statistical Consequences of Fat Tails: Real World Preasymptotics, Epistemology, and Applications," Papers 2001.10488, arXiv.org, revised Sep 2020.
    4. Xavier Gabaix, 2009. "Power Laws in Economics and Finance," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 255-294, May.
    5. Byoung Hee Hong & Kyoung Eun Lee & Jae Woo Lee, 2007. "Power Law in Firms Bankruptcy," Papers physics/0701302, arXiv.org.
    6. Robert A. Baade & Victor A. Matheson, 2016. "Going for the Gold: The Economics of the Olympics," Journal of Economic Perspectives, American Economic Association, vol. 30(2), pages 201-218, Spring.
    7. T. Maillart & D. Sornette, 2010. "Heavy-tailed distribution of cyber-risks," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 75(3), pages 357-364, June.
    8. Stephen B. Billings & J. Scott Holladay, 2012. "Should Cities Go For The Gold? The Long-Term Impacts Of Hosting The Olympics," Economic Inquiry, Western Economic Association International, vol. 50(3), pages 754-772, July.
    9. Paul C. Godfrey & Craig B. Merrill & Jared M. Hansen, 2009. "The relationship between corporate social responsibility and shareholder value: an empirical test of the risk management hypothesis," Strategic Management Journal, Wiley Blackwell, vol. 30(4), pages 425-445, April.
    10. Makridakis, Spyros & Taleb, Nassim, 2009. "Living in a world of low levels of predictability," International Journal of Forecasting, Elsevier, vol. 25(4), pages 840-844, October.
    11. Bent Flyvbjerg, 2013. "Quality Control and Due Diligence in Project Management: Getting Decisions Right by Taking the Outside View," Papers 1302.2544, arXiv.org.
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