You will be able to correct for availability and for the planning fallacy using an outside view.
Two weeks after a data breach at another company made the news, Mei's director asks every project lead to add a security review to their plans. That may well be sensible, but the same director has never asked about the risk that makes most of their projects slip, which is clients taking weeks to sign off each stage. The breach was vivid and recent, while slow sign-offs are dull and happen all the time, so you can guess which one feels more likely to him.
This lesson covers two biases that distort how we judge risk and plan work, and one technique, the outside view, that corrects for both.
The availability heuristic is judging how common or likely something is by how easily examples come to mind. Most of the time this works well enough: things that happen often are usually easy to recall. But some things are easy to recall for other reasons. They were dramatic, they were in the news, they happened to you or someone you know, or they happened last week.
Plane crashes get wide coverage, so many people overestimate how dangerous flying is compared with driving. A friend's story of a terrible renovation contractor makes every contractor seem risky. At work, a big client who left after a billing error makes billing errors feel like the main cause of lost clients, even if most clients who leave do so quietly for price reasons that never make a story.
The fix is to ask, whenever a risk or an outcome feels very likely, whether you are judging from a count or from a memory. Use data when you have it, and when you do not, look for a rough count. Mei could check how many projects in the last two years were delayed by a security issue and how many by slow sign-off, and put both numbers in front of the director.
The second bias is one almost everyone recognises from their own life. Kahneman and Amos Tversky named it the planning fallacy: the tendency to underestimate how long a task will take, and how much it will cost, even when you know that similar tasks in the past ran over.
Kahneman tells a story about himself in Thinking, Fast and Slow. He was leading a team writing a school curriculum, and the team, Kahneman included, estimated how long they would need. When he asked an experienced colleague how long similar teams had taken, the answer was far longer than anything the team had estimated, and the colleague added that a good share of similar teams never finished at all. The team carried on regardless, and the project took years longer than they had planned.
Experienced people fall into the fallacy as often as beginners, because it comes from how plans are made. You picture this project and its steps, and you imagine the work going roughly as intended. The many small things that could go wrong, each one unlikely, are hard to picture, but together they make some delay very likely. A plan built from the inside, step by step, almost always assumes a smoother path than reality provides.
Kahneman's remedy is what he calls the outside view. Before you look at the details of this project, ask how long similar projects took in the past. Start from that figure, the base rate, and only then adjust for anything genuinely different this time.
Here is how it works for Mei. Her team's inside estimate for the records migration is eight weeks. She looks up the last three similar migrations, which took 10, 14 and 12 weeks. The average is 12 weeks, half as long again as the current estimate. The figures are an example, but the pattern is common.
Mei now has a starting point of 12 weeks. Is there anything about this project that makes it truly easier than the last three? The client's data is cleaner, perhaps, which might justify going a little lower. Is anything harder? A new tool that nobody on the team has used before. She settles on 11 weeks, tells the client 12 to leave a margin, and writes down why.
The outside view feels pessimistic, and people resist it because "this one is different". Usually, every project felt different at the start. The question is whether it is different in a way that matters, and by how much.
Finding the base rate is often the hardest part. Look at past project records, timesheets, old emails with dates, or ask colleagues who have done similar work. Even three past cases are far better than none.
Availability and the planning fallacy show up beyond work plans. Renovations, weddings, studying for a part-time degree while working, moving house: all tend to take longer and cost more than planned, and all benefit from asking people who have done them recently. The same biases also shape investing decisions, which the course Behavioural Finance covers. This lesson keeps to work plans and everyday projects.
You probably have an estimate at work right now that was built from the inside, step by step. The activity below asks you to set it beside the outside view and see how far apart they are.
Take a current project estimate, find how long three similar past projects took, and revise the estimate.
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