Definition
Planning Fallacy: When making predictions or plans, people systematically underestimate the time, cost, or risk needed to complete a task, leading to over-optimistic plans; even with past data on similar tasks, they tend to believe “this time will be faster/cheaper.” [1]
Mechanism and evidence
Kahneman & Tversky (1979) attributed the planning fallacy to over-focus on the “ideal scenario–and neglect of distribution and historical baselines.[1]
Consumer decision patterns
Underestimating total cost of renovation or moving; underestimating time “to research then buy–and buying on impulse; overestimating how often you’ll use a feature and over-spec’ing. Results in both cognitive budget and monetary budget overruns.
Mitigation (Selection Logic)
The planning fallacy distorts T2 cognitive budget allocation: if you underestimate decision time, you over-allocate to “quick–options. Use reference-class forecasting (how long similar tasks took) and buffer time to correct.
- Ask “How long did a similar task actually take last time?— and add buffer.
- Before high-stakes decisions, reserve more time than “feels needed–for systematic evaluation.
- For “I’ll use it often–claims, use past behavior data instead of intuition.
References
- Kahneman, D., & Tversky, A. (1979). Intuitive prediction: Biases and corrective procedures. TIMS Studies in Management Science, 12, 313–27.
- Kahneman, D. (2011). Thinking, Fast and Slow. Farrar, Straus and Giroux.[source]