It has now been some days since I heard an episode of my current favourite podcast – No Stupid Questions, specifically Episode 78. Although the episode was really about a severe Achilles Heel of mine – procrastination, what really caught my eye was the mention of the term planning fallacy.
While I admit some of it’s charm lay in the fancy terminology, it really got me at how much I related to it. That led me to sniffing down it’s trail and finally to writing about something beyond mutual fund portfolios.
What is planning fallacy
Planning fallacy is a term coined by psychologists Daniel Kahneman and Amos Travesky (the ones of the Thinking Fast and Slow fame) in a 1979 paper. Taking a verbatim definition from Achieveit website, the concept is defined as “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”.
Not just that. In a follow-up to the above, researchers Roger Buehler, Dale Griffin and Michael Ross published three more intriguing findings in this paper. One, and most interestingly, people underestimate their own but not others’ completion times. Two, people focus more on building elaborate plans rather than focus on past experiences while doing so. Three, they display an attribution bias to remember the positives rather than the negatives in the past.
I have now been
working on struggling with writing a Personal Finance book for long enough. This is just one instance that pops out of a litter of shining examples of planning fallacy that I have experienced.
But if you want me to point out one planning fallacy which will be a eureka moment, then think of the time when you tell a friend you will meet them. Or even a time when you will reach an event. We Indians, notorious for running behind time should have no challenge in identifying with the planning fallacy at all.
Why does Planning Fallacy occur
While it is all and well to realise that we are miserable planners, why indeed do we fall for this fallacy.
1. Optimism bias
This is a term that finds it’s way into almost any discussion of planning fallacy. I have sometimes found the idea a little strange considering we also often think of our having a tendency to be negative. But, apparently for many instances we do display an optimism bias or as Wikipedia puts it, a cognitive bias that causes someone to believe that they themselves are less likely to experience a negative event. One of my favourite experiments that displays this bias remains what Prudential did to drive it home in terms of retirement planning.
Take a minute and watch it for yourself to understand Optimism Bias.
2. Over confidence bias
Do I really need to spell this one out? We see it in investing. We see it in our estimation of our performance, especially during appraisals. We see it in men. We see it in women. It is an inherent core part of the human experience. We tend to overestimate how well we will do something, in absolute and in relative terms.
The same over confidence bias plays a big role in our miserable track record at planning. We assume we are better than what we truly are.
When we make a plan, we often get wedded or anchored to it. What we fail to realise is that most situations and life per se is dynamic. Our plan may take into account everything possible. But all those possibilities are as on the day of the plan making. Those may or may not hold true with time. When we continue dragging on the same plan in the light of changed events, there is bound to be a gap.
So, when the situation changes, you gotta pivot with it and make your changes accordingly. Personally, I have a habit of building castles in thin air. Often reality squirts it with cold water to bring me down to earth. But, bit by bit, I scale back up and get to atleast half a castle in many cases.
How to conquer Planning Fallacy
While some of the suggestions below are things I have experienced myself, it looks like planning fallacy is something I alone am not privy to. A lot of the suggestions were repeated through many sources.
1. Take an outside view
This was one of the most oft repeated solutions, which possibly follows from Kahneman and Travesky’s implication that we take an “inside view” leading to a planning fallacy. While a lot of people seem to suggest we trust ourselves with the “outside view” as well, I am not too convinced with that idea. If you are planning on something important, outsource this outside view. Check with someone else who has been on the same path.
For instance, if you are planning a road trip, it is ideal to check with travellers who have already treaded that path. They may not all give you the same answer but it will feed important inputs to how you about framing your own plan.
2. Use data for repeated tasks
The funny thing about planning fallacy is that we often get our estimates wrong even when we might be doing the same task the nth time. Every morning I am certain of being able to get out for office on time. It is a routine, possibly with a few changes here and there (psst, covid) over the years. But, often enough that doesn’t really seem to happen. What does help at times is to time some of the morning activities like having a rough estimate of how much time it takes me to go and return from the gym.
3. Be specific about implementation
This is a big one in my books, one that I have experienced intensely while writing. I have lofty writing goals which have mostly fallen into the cycle of wistful thinking of some-day. However, when planning something it definitely helps when you are more specific about the how.
So, one of my projects that I am proud, my novel Second Serve, got completed only because of a simple rule of writing atleast 500 words a day for the manuscript. Now that my focus seems all over the place, adding more details of when and where might help me with the Personal Finance book I mentioned earlier.
4. Chunk it down
This is a suggestion that works for almost every aspect of goal setting. When you are aspiring towards a bigger task, trying to swallow it all in one big gulp will rarely work. Breaking it down into smaller doable parts comes with a dual benefit. One, it makes the task feel much more doable to our own unbelieving selves. Two, it also helps to keep your planning more dynamic because you could make tweaks after each stage.
5. Add a buffer
While all the previous suggestions are to tackle the idea of planning better, this one simply takes into account the idea that for most things we will take a shorter time goal than necessary. Hence, always add a buffer, sometimes even for others. For instance, I often enjoy meeting a friend (who always reads the blog and mostly has a list of more post ideas ready) for dinner on a weekday. On most such occasions I end up taking her timeline at face value and waiting for atleast half an hour at the designated restaurant. Now, I automatically add 30 minutes to the time at which she promises to meet me. Dilemma solved, mostly!
To me, the biggest surprise was the fact that the most touted examples of planning fallacy are infrastructure projects across the world. Who knew that is not just an Indian problem of seeing unfinished projects dragging along for years!
Optimistically under calculating the time we might require for a project is one of the most human weaknesses on display. When we acknowledge it and try to work around it, planning can change from being an Achilles heel to becoming a strength.
Have you experienced planning fallacy? How did you deal with it? Let me know in the comments below.