323. Here’s Why All Your Projects Are Always Late — and What to Do About It

Whether it's a giant infrastructure plan or a humble kitchen renovation, it'll inevitably take way too long and cost way too much. That's because you suffer from “the planning fallacy.” (You also have an “optimism bias” and a bad case of overconfidence.) But don't worry: we've got the solution.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Stephen J. Dubner?

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• 0:45Stephen J. Dubner?

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• 1:29Stephen J. Dubner?

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• 2:15Stephen J. Dubner?

  In 1968, 50 years ago, the governor of New York State, Nelson Rockefeller, received a proposal he'd commissioned. It addressed the mass transit needs of the New York City area. One centerpiece of the plan was a new subway line that would run from Lower Manhattan up the East Side and into the Bronx. It was called the Second Avenue Subway. Four years later, Rockefeller and New York City Mayor John Lindsay held a groundbreaking ceremony for the Second Avenue Subway, but not long afterward, the project was shelved because of a fiscal crisis. Years later, a new governor, Mario Cuomo, tried to restart it, but, once again, the budget would not allow, and back it went on the shelf.

• 2:57Stephen J. Dubner?

  By now, the Second Avenue Subway had become a punchline. A New Yorker would promise to pay back a loan once the Second Avenue Subway was built. It came to be known as "the most famous thing that's never been built in New York City." But then, along came a man named Michael... Here, I'm gonna let him say it.

• 3:16Speaker 01

  Michael Rodnichiano. If you look to see how people on Second Avenue would recognize me as Dr. H. No one is really willing to pronounce my last name.

• 3:28Stephen J. Dubner?

  Okay, let's go with Dr. H. He is a longtime transportation scholar and executive. In 2008, he became president of capital construction for the Metropolitan Transportation Authority. And one of the first things he did was restart the Second Avenue Subway. By now, it was 40 years since Governor Rockefeller's original proposal. Dr. H. updated the budgets and estimates and finally got construction started. In 2010, a massive tunnel boring machine began its work underneath 92nd Street.

• 4:01Speaker 01

  So, they're about to start, and then they probed ahead into the rock, and then suddenly, the realization is that the quality of the rock was poor. In effect, there was water going to there, so the decision was made that we have to freeze about close to two blocks. It took us four months to actually freeze the ground. And it's costly. On Second Avenue, we spent $10 million to do it.

• 4:32Stephen J. Dubner?

  $10 million in four months just to freeze the ground, just to start building the tunnel. Would New York City ever get its Second Avenue subway? The reason this story became so famous is that it is such a grotesque example of a blown deadline. But surely, you can identify. Surely, you've been involved in something, maybe a work project, or a home renovation, even writing a paper, that was also grotesquely late, and painful, and expensive. Today on Freakonomics Radio, why are we so, so, so bad at finishing projects on time? And what are we supposed to do about it?

• 5:28Speaker 02

  From WNYC Studios, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dubner.

• 5:42Stephen J. Dubner?

  Today's episode begins, as so many good things do, in Canada.

• 5:46Speaker 03

  All right, well, I'm Roger Buehler, and I'm a professor of psychology at Wilfrid Laurier University.

• 5:51Stephen J. Dubner?

  That's in Waterloo, Ontario.

• 5:52Speaker 03

  I study social cognition, as well as judgment and decision making.

• 5:58Stephen J. Dubner?

  Buehler has long wanted to know why we're so bad at managing projects. His interest began during grad school with a personal puzzle.

• 6:05Speaker 03

  Every night as I'd leave the office, I would pack up my briefcase with jobs to do at home. And more often than not, I'd come back to the office the next day with all of it untouched. But every night as I packed up that briefcase, I was sure that my plans were realistic. So that was the puzzle. Why wouldn't I learn from experience and get more realistic in my estimates?

• 6:31Stephen J. Dubner?

  In the beginning, did you think, it must just be me? I must be the one who's failing here? Or did you recognize it as a generalizable phenomenon?

• 6:39Speaker 03

  Well, partly it seemed odd, but then I noticed it in people around me, too. In fact, I remember some particular- Colleagues who were forever promising things and never coming through and noticing that, well, they seem to believe it, though, when they're saying it. It seems real. So it did start to seem like a more generalizable thing.

• 7:03Stephen J. Dubner?

  Bueller and his colleagues were, of course, not unique. The phenomenon even had a name, courtesy of the psychologists Danny Kahneman and Amos Tversky. They had called it the planning fallacy.

• 7:16Speaker 03

  So the planning fallacy is a tendency to underestimate the time it will take to complete a project while knowing that similar projects have typically taken longer in the past. So it's a combination of optimistic prediction about a particular case in the face of more general knowledge that would suggest otherwise.

• 7:44Stephen J. Dubner?

  You can imagine the value of being able to diagnose and treat the planning fallacy. We all plan for the future, whether it's a huge infrastructure project or a research paper that's due in three weeks. Wouldn't it be nice to be able to plan better? So first, Roger Bueller and some colleagues set out to measure the planning fallacy. Their first experiment used honors students who were working on their thesis projects. The researchers asked each student to predict when they'd submit their thesis.

• 8:12Speaker 03

  I know psychologists make use of students too much, but for this research, they really do have a lot of activities on the go, and they're kind of concrete activities, often with clear deadlines, making them a nice population to actually study for this topic.

• 8:28Stephen J. Dubner?

  These students predicted, on average, that their theses would take 33.9 days to finish. How long did it actually take? 55.5 days. That's a 64% overage. Bueller and other researchers found similar evidence of the planning fallacy among stockbrokers and electrical engineers and doctors. They also found it in everyday activities like Christmas shopping, doing taxes, even waiting in line for gas.

• 8:58Stephen J. Dubner?

  So let me ask you the largest and most impossible question. What's wrong with us? Why is there such a gap between intention and behavior?

• 9:06Speaker 03

  Right. Well, my thinking on this has been guided by a distinction drawn by Kahneman and Tversky between two types of thinking, one being an kind of inside approach and the other being an outside approach. And the inside approach involves really focusing on the case at hand and trying to work out the details of that unique case. It's like you're developing a mental scenario or mental simulation of how you think that project will unfold. But the problem is that mental simulations often don't provide a thorough and comprehensive representation of how things will go. They tend to often be kind of idealized, oversimplified.

• 9:51Speaker 03

  And when people get into that frame of thought, they don't entertain alternative ways in which things may go. They kind of get locked into one scenario. But then I would couple that with also people's wishes and desires. So generally, when you're planning something out, you're planning to succeed. You're not planning to fail.

• 10:13Stephen J. Dubner?

  The second tendency that Bueller is talking about, seeing the future in rosy terms, there's a name for that, too. It's called the optimism bias.

• 10:22Speaker 04

  I think it's a wonderful thing.

• 10:24Stephen J. Dubner?

  Tali Sharot is a cognitive neuroscientist at University College London.

• 10:29Speaker 04

  There are so many positive aspects to having an optimism bias. In fact, in our research, we see that the people without an optimism bias tend, in most cases, to be slightly depressed at least, with severe depression being related to pessimistic bias, where people expect the future to be worse than it ends up being. So, I mean, it's a good thing because it kind of drives us forward, it gives us motivation, it makes us explore different things. It's related to better health, both physical and mental health, because if you expect positive things, then stress and anxiety is reduced, so that's very good for both physical and mental health.

• 11:07Stephen J. Dubner?

  Sherri believes in the optimism bias, and she believes it is rooted in neuroscience. Her experiments have repeatedly shown that the brain tends to process positive information about the future more readily than negative information. It's easy to see how that could feed the planning fallacy.

• 11:24Speaker 04

  So for example, if I tell you, you know, you're going to get many more listeners this week than usual, you'd say, oh, OK. And you'd kind of change your estimate and think it's going to be 10 million. But if I tell you, you're going to get many less listeners this week than you expect, you'd say, well, she doesn't know what she's talking about.

• 11:40Stephen J. Dubner?

  That's exactly what I was saying in my mind, just so you know. Do you believe that something like the optimism bias was, is baked in for legitimate or positive evolutionary purposes then? Or do you think it's more of, you know, a little bit of a design flaw that we've learned can have some benefit?

• 11:59Speaker 04

  So I think it's not a design flaw, and it's a two-part answer. So the first part answer is, you know, it's probably there because of all the positive aspects that I just mentioned, right? I mean, we know that people who are optimists live longer, so we survive more, we're more likely to find a partner, we're more likely to have kids and all of that. So there is a clear survival benefit and a benefit to just progressing. However, as you imply, there are also these negative consequences, right? If we think everything's going to be OK or better than what we anticipate, we might not take precautionary action, we might, you know, smoke when we shouldn't and that kind of thing. So there are the negative aspects to it.

• 12:40Speaker 04

  But what our research shows is that it's even better than what I just explained because the optimism bias is in fact flexible. So it changes in response to the environment. It can disappear under environments in a way that may be optimal.

• 12:58Stephen J. Dubner?

  Here's what Sherrett means by that. She and her colleagues run experiments in which they ask different kinds of people, firefighters, for instance, to assess the likelihood of bad things happening to them, getting divorced, or being in a car crash, or getting diagnosed with cancer. These are basically their wild guesses.

• 13:15Speaker 04

  And then we give them information about the average likelihood of having these events for someone like them, and then we ask them again.

• 13:22Stephen J. Dubner?

  OK, so the firefighters would have their baseline guess, and then they'd guess again after getting some statistical context. But there was another twist. They were also asked a question in two different environments, on days when they'd been fighting fires, and during downtime, when they weren't.

• 13:39Speaker 04

  And what we found was that when the firefighters were under stress, they learned more from this negative information. The more stressed they were, more anxious they were, the more likely they were to take in any kind of negative information that we gave them, whether it's about cancer, or divorce, or being in a car accident, and so on.

• 14:01Stephen J. Dubner?

  Based on these results, Sherrett argues that human optimism is both adaptive and mutable. So that's good to know. The optimism bias may be a sort of evolutionary insurance policy against hopelessness and depression. And maybe it's played a role in some of the astounding progress that humankind has made over the millennia. You'd have to be pretty optimistic to come up with space travel, and aspirin, and French cuisine, n'est-ce pas? But still, wouldn't it be nice to also figure out how to get projects done on time and on budget? That is something that Catherine Milkman has been thinking about for years.

• 14:38Speaker 05

  I'm an associate professor at the Wharton School of the University of Pennsylvania.

• 14:42Stephen J. Dubner?

  Milkman's PhD is in computer science and business, but as an undergrad, she studied operations research, which means what?

• 14:50Speaker 05

  You try to figure out how to be more efficient about everything using math.

• 14:55Stephen J. Dubner?

  To that end, Milkman has spent a lot of time studying and teaching the planning fallacy. And yet, this does not personally inoculate her against it.

• 15:05Speaker 05

  Well, I will tell you that it took longer to prepare to talk to you about this than I expected.

• 15:10Stephen J. Dubner?

  Yeah, like how long?

• 15:13Speaker 05

  I don't know, like an hour.

• 15:15Stephen J. Dubner?

  Well, yeah, that's a lot.

• 15:17Speaker 05

  Yeah, but it's planning fallacy. I was sure it would take like 10 minutes.

• 15:20Stephen J. Dubner?

  In her research, Milkman has found that when groups work together on a project, a number of factors collude to form the planning fallacy.

• 15:28Speaker 05

  So one is overconfidence, or the tendency we have to think we'll do things better than we will. We are overconfident for many, many reasons. One is that it makes us feel better about ourselves. We're often rewarded for it. Imagine two people walked into an interview and one of them says, "I'm going to be great at this job. I'm great at everything I do." And the other person says, "I hope to be great at this job. I try to be great at everything I do, but sometimes I fail." I think most of us would respond more positively to the person who says, "I'm going to be great." And that is a lifetime of feedback we give people. We're rewarding them for overconfidence constantly.

• 16:05Stephen J. Dubner?

  So there are individual biases like overconfidence, but with large projects, there's also what's called

• 16:12Speaker 05

  coordination neglect.

• 16:13Stephen J. Dubner?

  And coordination neglect is

• 16:16Speaker 05

  the failure to think about how hard it is to put stuff together when other people are involved. And so that can make the planning fallacy bigger and better when there are teams of people trying to finish work on time.

• 16:29Stephen J. Dubner?

  From an economic standpoint, this sounds backwards. You would think that larger size, theoretically, creates more specialization of labor and ultimately higher productivity. Why doesn't it?

• 16:43Speaker 05

  So when you staff a bigger team on a project, you focus on all the benefits associated with specialization, what you just mentioned. And what you neglect is to think about how challenging it is to get that work all back together into a single whole. So this engineer now has to talk to that engineer about how to combine their outputs into one integrated system.

• 17:06Stephen J. Dubner?

  And there's one more component of the planning fallacy, a blatantly obvious one.

• 17:10Speaker 05

  It also relates to procrastination. Because of self-control failures, we put it off. And then that can make the planning fallacy a bigger issue because if you don't start the project on time because you keep putting it off, how in the world are you going to finish it on time?

• 17:27Stephen J. Dubner?

  And let me ask you this. What is, if we have any idea, the primary root cause of procrastination?

• 17:34Speaker 05

  God, what is the primary root cause of procrastination? Like, get to the heart of everything I've thought about for the last 15 years in one question. I think the primary root cause of procrastination is impulse control. The fact that we tend to want to do what's more instantly gratifying in the moment than what is better for us. And so we put off doing the things we know we should do in favor of what's instantly gratifying.

• 18:00Stephen J. Dubner?

  There is reason to believe that our impulse control is being tested today more than ever. With the revolution in digital communication has come a blizzard of notifications, alerts, messages, and more. While there are obvious upsides to the speed and magnitude of this communication, there are also costs. Information overload is thought to decrease US productivity by at least $1 trillion a year. What to do about all that wonderful, terrible digital distraction? We brought that question to Justin Rosenstein.

• 18:33Speaker 06

  I'm the co-founder and head of product at Asana.

• 18:36Stephen J. Dubner?

  Okay, Asana, for those who don't know what it is, let's start with that.

• 18:41Speaker 06

  Asana is software that enables teams to be able to work together more easily.

• 18:45Stephen J. Dubner?

  All right, but let's back up. Rosenstein's first job was at Google. Here's how he envisioned that job before it began.

• 18:53Speaker 06

  I'm going to be spending all my time working with these world-class engineers, world-class designers, figuring out great things that we can do to be able to make people's lives better.

• 19:03Stephen J. Dubner?

  And he did work on some exciting projects.

• 19:05Speaker 06

  I was the original product manager for Google Drive and helped co-invent a lot of that. I co-invented Gmail Chat.

• 19:13Stephen J. Dubner?

  But the reality of working at Google didn't match his vision of working at Google.

• 19:18Speaker 06

  Literally, the majority of the time was spent not doing work, not writing code, but was doing the work about work. It was making sure that the left hand knew what the right hand was doing. It was sitting in status meetings and preparing status updates.

• 19:33Stephen J. Dubner?

  At first, he thought he must have been doing something wrong.

• 19:36Speaker 06

  There's no way that this could be what everyone tolerates when they go to work and work in companies. And so thought maybe there's something that was wrong with Google. Talked to people who worked at other companies and discovered to my horror that, no, Google was actually very advanced. Most companies were far less organized.

• 19:50Stephen J. Dubner?

  He looked around for software solutions. There were a lot, but none that did what he wanted.

• 19:54Speaker 06

  What I really wanted was just a single place that I could go to see, what is everyone on my team working on? And who's responsible for which things? And what's the sequence? And what are the dependencies between those things?

• 20:05Stephen J. Dubner?

  So nights and weekends, he started hacking together some software to accomplish that.

• 20:10Speaker 06

  And I just built it as something for me and a few dozen people that I worked with to use. But it grew virally within Google. And that really startled me because Google has access to the best tools in the world. It was insane to me that there were so many people who were excited about what I had built.

• 20:25Stephen J. Dubner?

  But not long after, Rosenstein left Google for Facebook.

• 20:29Speaker 06

  At some point, I got a Facebook friend request from Dustin Moskovitz, who's the co-founder of Facebook. And so eventually was persuaded that, yeah, it would be exciting to be a part of that. Actually, one of the sad things about leaving Google was that I had to leave that tool behind that I had built inside of Google.

• 20:44Stephen J. Dubner?

  Because it belonged to Google?

• 20:46Speaker 06

  Because, yeah, because it was intellectual property of Google.

• 20:48Stephen J. Dubner?

  Rosenstein asked Moskovitz if Facebook had the same project management problems he'd seen at Google.

• 20:54Speaker 06

  He was like, you have no idea. I am tearing my hair out. By the time I get information about what the people in my own company are working on, the information is so old that it's wrong.

• 21:06Stephen J. Dubner?

  By day, Rosenstein was helping invent Facebook's Like button. At night and on weekends, he and Moskovitz started talking about a software solution to help manage their workflow.

• 21:16Speaker 06

  And at some point, we started building it. We started actually implementing that solution. And this internal tool that we built at Facebook took off.

• 21:23Stephen J. Dubner?

  And they realized their solution wasn't unique to Facebook or Google or just tech companies. What they had developed, he believed.

• 21:31Speaker 06

  We had developed a general solution that would enable any team to be able to work together more effectively.

• 21:35Stephen J. Dubner?

  So this time, did you own the IP?

• 21:39Speaker 06

  That is Facebook's IP and the work that we did there, actually, Facebook still uses it to this day.

• 21:45Stephen J. Dubner?

  Rosenstein and Moskowitz eventually left Facebook to start up Asana.

• 21:49Speaker 06

  What really made us decide that we wanted to leave Facebook was really feeling like this was itself a Facebook-sized opportunity.

• 21:56Stephen J. Dubner?

  So I understand that you and Dustin, I guess, had an estimate for how long it would take to get the company up and running. I'd love you to talk about that and how long it actually took.

• 22:06Speaker 06

  Yeah, we were hopeful, especially given that by this point I had built some version of this twice. And we were like, maybe in about a year, we'll be able to launch the first version of the product. And it took three years.

• 22:21Stephen J. Dubner?

  By now, Asana has a large and prestigious customer list. They're one of dozens of companies that build productivity software. The market is estimated at $1.2 billion. Rosenstein, like Katie Milkman, believes that a key to success here lies in mastering impulse control and in fighting distraction.

• 22:39Speaker 06

  Continuous partial attention is this term for this state that it's easy to get into if you're not careful, where you're never quite focused on any one thing. And I think humans in general tend to distract themselves. But we've entered a world in which distraction has become more and more the norm. Your cellphone buzzing, some chat message coming in. And there's research from the University of California at Irvine that every time you get interrupted, it takes 23 minutes to fully recover.

• 23:07Stephen J. Dubner?

  It is an irony, however, isn't it, in that you're creating software to solve the problem that's been created essentially by software?

• 23:14Speaker 06

  Software has been a big contributor to that problem. And as I mentioned, I co-invented the like button.

• 23:19Stephen J. Dubner?

  Including the firms you used to work for.

• 23:20Speaker 06

  Yeah.

• 23:23Speaker 06

  I've thought about this issue quite a bit.

• 23:24Stephen J. Dubner?

  So this is all atonement, in other words, on some level at least, yeah?

• 23:30Speaker 06

  Now, you point out this really important point, that there are unintended consequences. And things that I've worked on in the past have had this property where even if you have the intention that they'll be used entirely in a good way, sometimes there are negative things you couldn't foresee. I think that the answer to that is neither to shrug and just say, well, whatever happens, happens, nor is it to become a Luddite and say, well, we have no idea what the unintended consequences of anything is going to be, so we shouldn't even try building things. The middle way is to accept there will always be unintended consequences. But we can notice those unintended consequences and then design through them.

• 24:10Stephen J. Dubner?

  Coming up on Freakonomics Radio, how do you design through those consequences? When it comes to going over budget, here's one simple solution. You'd add 40% to the budget. And more generally, another solution. Algorithms. And if you're enjoying this podcast, tell the world. Leave us a rating or review on Apple Podcasts or wherever you listen. You can also tell your friends about us via Twitter, Facebook, and LinkedIn. We'll be right back.

• 24:46Stephen J. Dubner?

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• 25:29Stephen J. Dubner?

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• 25:51Stephen J. Dubner?

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• 26:22Stephen J. Dubner?

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• 26:57Stephen J. Dubner?

  There are a lot of reasons why that project you planned can take way longer than you anticipated and cost way more. Outright fraud, for instance, the lying, cheating and stealing familiar to just about anyone who's ever had, say, a home renovation, especially in New York City. And yes, I speak from personal experience. There's also downright incompetence. That's hard to plan for. But today, we're talking about the planning fallacy, which was formally described a few decades ago by the psychologists Danny Kahneman and Amos Tversky. When they started theorizing about how to correct for the planning fallacy, they identified what they thought was a key factor. When people estimate how long a project will take, they focus too much on the individual

• 27:42Stephen J. Dubner?

  quirks of that project and not enough on how long similar projects took. This second approach is called reference class forecasting.

• 27:51Speaker 07

  The reference class forecast says, actually, if you're planning Project X that you're about to start, ignore Project X.

• 27:58Stephen J. Dubner?

  That's Yael Grushka-Cocain. She teaches project management and decision making at the University of Virginia's Darden School of Business.

• 28:06Speaker 07

  Don't think about it too much. Look back. Look back at all the projects you've done, all the projects that are similar to this new Project X. And look historically at how well those projects performed in terms of their plan versus their actual. See how accurate you were, and then use that shift or use that uplift to adjust your new project that you're about to start.

• 28:28Stephen J. Dubner?

  As we've seen with Justin Rosenstein and Katie Milkman, Grushka Kokain does not always practice what she preaches.

• 28:36Speaker 07

  I'm a pretty decent planner, but I'm not as organized as I would probably recommend other people be. I like to improvise. I'm also-- I'm Israeli, and Israelis are notorious for being pretty spontaneous by nature. So we hate planning. And I'm married to a Brit who is, you know, the exact opposite. You know, the Brits plan what they want to eat for lunch in about six months' time. And I'm like, I don't know if I want custard or pudding. I don't know. Leave me alone.

• 29:03Stephen J. Dubner?

  Grushka Kokain has been studying the planning fallacy in governments as well as in private firms. And she likes the trend line.

• 29:11Speaker 07

  I will say that more and more companies these days are improving their performance overall.

• 29:16Stephen J. Dubner?

  She believes that further improvement lies in a stronger embrace of, no surprise here, data.

• 29:22Speaker 07

  More and more government bodies are publishing some planned and some actual deadlines and budgets. And tracking performance and tracking historical plans and actuals is the fundamental first step in overcoming the planning fallacy. So the main broad insight is you should track your performance. Because if you just start with that, let alone anything more sophisticated, you would raise the profile of the issue as a performance issue within the organization, and you will improve.

• 29:52Stephen J. Dubner?

  One profession that exemplifies this improvement? Meteorologists, believe it or not.

• 29:58Speaker 07

  While we like to give them a hard time, we all have weather apps on our phone, and we trust them quite a great deal. Because, you know, putting it all together, at the end of the day, they're pretty accurate with their predictions. And yes, they have sophisticated systems that decompose what they're trying to predict. But they also track, and they score themselves, and they keep record of how accurate they were. And only by doing that will you stand a chance to improve.

• 30:21Stephen J. Dubner?

  Tracking and scoring the difference between forecasts and outcomes. That trend owes a lot to this man.

• 30:29Speaker 08

  My name is Ben Flubiar, and I'm a professor at Oxford University's Said Business School.

• 30:34Stephen J. Dubner?

  Flubiar is an economic geographer who years ago became fascinated with infrastructure megaprojects. It began in his native Denmark.

• 30:42Speaker 08

  So Denmark at one stage decided to start doing megaprojects. And the first megaproject they did was a connection between East and West Denmark. And it went terribly wrong. And I got curious and wondered, is this just bad luck or is this common?

• 30:58Stephen J. Dubner?

  It was, he found out, very common. First, let's get a sense of the magnitude of the problem. Flubiar has estimated that infrastructure projects with a budget above $1 billion add up to between $6 and $9 trillion a year globally. That's about 8% of global GDP.

• 31:15Speaker 08

  So we've studied estimated cost and actual outturn cost for hundreds of projects around the world. And it turns out that 80 to 90% of all projects have cost overruns. We did the same for schedule. So comparing estimated schedule, how long would it take? With actual schedule, how long did it actually take? And found the same thing, that 80 to 90% of projects have schedule overrun. So it takes longer, many times years longer than originally planned.

• 31:42Stephen J. Dubner?

  These data led Flubiar to establish what he calls the iron law of mega projects.

• 31:47Speaker 08

  Over budget, overtime, under benefits, over and over again.

• 31:52Stephen J. Dubner?

  And it's a longstanding trend.

• 31:54Speaker 08

  So our data now go back 100 years and we find that it's a very constant situation. It doesn't matter which part of the period you look at, you have a constant cost overrun and you have constant schedule overrun and you have constant benefit shortfalls.

• 32:10Stephen J. Dubner?

  Okay, so why does this happen? The first theory Flubiar embraced is called strategic misrepresentation, which is essentially a fancy way of saying that you lie in order to get what you want.

• 32:22Speaker 08

  We'd actually interviewed planners who said that they did this deliberately, that they actually were incentivized to misrepresent the business cases for the projects in their benefit cost analysis. And they wanted their projects to look good on paper to increase their chances of getting funded and getting approval for their projects. And they said, we do this by underestimating the cost and overestimating the benefits because that gives us a nice high benefit cost ratio so that we actually get chosen.

• 32:50Stephen J. Dubner?

  This may strike you as intellectually dishonest at the very least, but this strategy is endorsed by no less an authority than Danny Kahneman himself, who won a Nobel Prize for economics.

• 33:02Speaker 09

  If you realistically present to people what can be achieved in solving a problem, they will find that completely uninteresting. You can't get anywhere without some degree of overpromising.

• 33:15Stephen J. Dubner?

  So between strategic misrepresentation and the optimism bias, what are you supposed to do if you're on the commissioning end of a mega project? After all, the stakes are quite high.

• 33:27Speaker 08

  So if you have a lot of mega projects going wrong, your whole national accounting and funding system, you know, where you plan the budget for next year becomes very unreliable.

• 33:37Stephen J. Dubner?

  Consider what the British government did with its official Green Book, which tracks public spending.

• 33:42Speaker 08

  So the UK government has a Green Book about estimating projects, which was developed quite a while ago because it turned out that all these projects going wrong all the time actually made it very difficult for the government to produce reliable budgets. So the UK decided to do something about that, led by the Treasury.

• 34:00Stephen J. Dubner?

  FLOPR worked with the UK Treasury and the Department of Transport in order to get this right.

• 34:06Speaker 08

  To get this right for infrastructure and transport projects and developing a methodology, which has, in the meantime, become mandatory in the UK for large projects. And other countries have studied this, including Denmark. And Denmark has also made this method mandatory.

• 34:22Stephen J. Dubner?

  And what is this mandatory method? Basically, it's strategic misrepresentation in the opposite direction.

• 34:30Speaker 08

  Let's say you're doing an urban rail project. You're having a subway extension. You will do all the usual conventional stuff. You'll get your cost estimate and your schedule estimate. And then, on the basis of empirical evidence, you maintain a database documenting how much are the budgets usually underestimated for this type of project? How much is the schedule usually underestimated for this type of project? And then you're using the numbers from previous projects to adjust the numbers for the new project that you're doing. So let's say that on average, Projects go 40% over budget. You'd add 40% to the budget for your planned project and then you would have a much more accurate budget.

• 35:14Stephen J. Dubner?

  But what about perverse incentives? If the contractor knows you're expecting them to come in 40% over budget and over deadline, too, where's their incentive to work hard?

• 35:24Speaker 08

  Yeah, that's very important and we actually don't recommend using this methodology unless you incentivize contractors because you could make the situation much worse. And it is something that we didn't ignore when we developed this with the UK government and the Danish government. So at the same time as this methodology was made mandatory, it was also made mandatory that the people involved in delivering these projects would actually have skin in the game, as we call it. So you need to write your contract, for instance, in a manner where the contractor will gain additional profit if they actually meet your targets, but they will also be punished by having to pay for it and they will make less profit if they don't meet your targets.

• 36:13Stephen J. Dubner?

  So how well has this worked? It's hard to be too definitive. This system has been in place only since 2004 and big infrastructure projects have long timelines, but a preliminary analysis done by outside researchers has found the projections to be reasonably accurate and the cost overruns to be reasonably small. About 7% from the planning stages of a transportation project to completion, all of which suggests that pricing in the optimism bias and using reference class forecasting are truly useful tools to fight the planning fallacy. Katie Milkman, as I learned, has one more suggestion.

• 36:54Stephen J. Dubner?

  So let me ask you this, considering that the planning fallacy is as wide and as large as it is and considering all the costs, I mean, you can just imagine in construction or in medicine, all these costs that can rack up, what should be done about it?

• 37:11Speaker 05

  Algorithms.

• 37:14Stephen J. Dubner?

  That was easy. See you later.

• 37:18Speaker 05

  There's such a clear answer to this one, and it is frustratingly hard to convince people for reasons I don't know if you've covered algorithm aversion on your podcast, but people are very averse to using algorithms for all sorts of reasons that I think are a little crazy. Anyway, algorithms are the answer.

• 37:33Stephen J. Dubner?

  So when I think of people who don't have a planning fallacy, I think of Amazon. So like, I go on Amazon and I find something I want, and they tell me when I'm going to have it. And then by then, or even before then, I have it, probably 95% of the time. So that doesn't seem so hard. What's the problem with everybody else?

• 37:54Speaker 05

  I love that example because Amazon relies on an algorithm to make that forecast, and they have lots and lots of data going into that algorithm because they've literally solved this problem probably billions of times before. And that is exactly how we cure the planning fallacy. We use data instead of human judgment to make forecasts, and then we don't have this problem anymore.

• 38:17Stephen J. Dubner?

  Okay, so that sounds perfect and foolproof, but of course, it isn't.

• 38:22Speaker 07

  We don't always think mathematically, and we don't have crazy statistical models in our mind that allow us to come up with exact, accurate predictions.

• 38:29Stephen J. Dubner?

  That, again, is Yael Grushka-Cucain from the University of Virginia.

• 38:33Speaker 07

  And you need the data, okay? And you need to apply it in a sensible way. You need to identify those similar projects. What is my reference class? You know, it's not going to be just a bunch of projects with very different characteristics. So going and finding similar references, by definition, not always going to be easy because projects are different.

• 38:53Stephen J. Dubner?

  And the difficulty of truly solving the planning fallacy is perhaps best exemplified by our Canadian friend, Roger Buehler. So you began by telling us that you got interested in the planning fallacy out of personal experience. You'd bring this briefcase home full of work and never get it done. Have you improved over time?

• 39:15Speaker 03

  Unfortunately, no. I'm still carrying around this overweight briefcase. I do think I've learned and that I'm more open to using my past experiences and probably more likely having studied it this many years to pause and ask myself, okay, what's happened in the past and I should take that in. But even so, it's not the natural way to do it. It still takes effort to make your predictions in that manner. It's easier to fall into an optimistic plan for the case at hand.

• 39:52Stephen J. Dubner?

  Was there ever a more optimistic plan than New York Governor Nelson Rockefeller's plan to build the Second Avenue subway in New York City? As you'll recall, the proposal was hatched in 1968. It was finally passed along to the Metropolitan Transportation Authority's Dr. H. in 2008.

• 40:11Speaker 01

  I cannot tell you that I had one big thing that created a problem because there was not that. You do have the little things that constantly interfere.

• 40:26Stephen J. Dubner?

  Those little things tend to add up. In 2007, the MTA pushed back the completion date to 2014. A year later, it was pushed back another year. Same routine the following year. It took a work acceleration agreement and an infusion of $66 million above the planned budget to finally bring the project home on the last day of 2016.

• 40:57Speaker 01

  The governor took a celebratory ride on the night of December 31st. We had a big party in the station at 96th Street.

• 41:05Speaker 10

  Well, thank you very much. Good evening to all of you. What a great night, huh?

• 41:11Stephen J. Dubner?

  That governor, by the way, was Andrew Cuomo, who's the son of one of the previous governors, Mario Cuomo, who tried to build the Second Avenue subway. To date, the project has cost $4.5 billion, making it, per mile, one of the most expensive mass transit projects in history. Oh, yeah, it also came in about $700 million over budget. And here's the best part. All that money and time went into building just two miles of tunnel and three new stations, not the eight and a half miles and 15 stations in the original plan. Those are still to come. As Dr. H sees it, a deadline this badly missed comes from some unexpected developments, to be sure,

• 41:55Stephen J. Dubner?

  but also deliberate deception.

• 41:57Speaker 01

  Quite frankly, most of these mega projects are being started by people that never end them. I'm talking about elected officials. So because they're the one that make the decisions, they will have aggressive schedules and optimistic budgets. Why? Because they will have to show their constituents that this is done. So now, if you start a project today, chances are that someone else will finish it. Right? So I'm gonna take the view that I'm on the job now. I want to get to be reelected for the next 40 years.

• 42:40Speaker 01

  We're gonna be efficient and do all of these things. And then you're gone. So now comes the next guy or woman and says, "Holy [bleep], it's gonna cost another, I don't know, half a billion dollars to complete it." So a lot of these projects would have never actually happened if people were, and this is the unfortunate truth, unless they presented a more optimistic view than actually would be.

• 43:12Stephen J. Dubner?

  The second phase of the Second Avenue subway line, another one and a half miles, is now under construction. It's set to cost $6 billion and open between 2027 and 2029. How much would Dr. H. be willing to bet on a timely, on-budget completion?

• 43:29Speaker 01

  I'm not a betting man. I only bet when I am sure that I can win, right? I wouldn't bet on that at this point.

• 43:36Stephen J. Dubner?

  And how about his chances of someday riding the entire completed line, all the way from downtown Manhattan up to the Bronx?

• 43:44Speaker 01

  Me? No. I have no expectation or desire to live that long.

• 43:57Stephen J. Dubner?

  Coming up next time on Freakonomics Radio, we get into the costs and benefits of dragon babies.

• 44:06Speaker 11

  Since ancient times, Chinese people have believed that babies born in the mythical dragon year were destined for success.

• 44:14Stephen J. Dubner?

  Do dragon kids really turn out to be more successful? If so, why? And does it happen in America, too? That's next time on Freakonomics Radio.

• 44:26Stephen J. Dubner?

  Freakonomics Radio is produced by WNYC Studios and Dubner Productions. This episode was produced by Alvin Melathe. Our staff also includes Alison Hockenberry, Greg Rosalsky, Stephanie Tam, Max Miller, Merritt Jacob, Vera Karuthers, Harry Huggins, and Brian Gutierrez. The music you hear throughout our episodes was composed by Luis Guerra. You can subscribe to Freakonomics Radio on Apple Podcasts or any number of podcast portals. You should also check out our archive at Freakonomics.com, where you can also stream or download every episode we've ever made. You can also read the transcripts and find links to the underlying research. Our show can also be heard on NPR stations across the country. Check your local station for the schedule. Also, on SiriusXM and Spotify. We can be found on Twitter, Facebook,

• 45:11Stephen J. Dubner?

  LinkedIn, or via email at [email protected]. Thanks for listening.

• 45:36Stephen J. Dubner?

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• 46:08Stephen J. Dubner?

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• 46:39Stephen J. Dubner?

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• 47:10Speaker 12

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