Planning Fallacy
The planning fallacy is a concept propounded by intellectuals Daniel Kahneman and Amos Tversky, in 1979. This is a concept of intentional bias for estimated completion time. Planning is a process of creating a blueprint for your further actions. When we make a plan, we make it on the basis of our past experiences. It is a calculated path which we have to follow to attain a certain goal. The planning fallacy is a result of overestimating abilities. This concept comes into existence when we are biased in favor of the time we need. In this article, we will discuss the intricate details of a planning fallacy and its consequences.
The Theory of Planning Fallacy
The planning fallacy is a concept that you can see in almost all aspects of life. Getting overconfident and overestimating our abilities is a natural phenomenon. Be it a big industry or a small firm, planning is the first step to start a business. Every business owner or an employee has come across this fallacy at some point in his or her life. The fallacy is not a real mistake. It’s a deliberate error because we overestimate our abilities.
Planning is a result of past experiences. When we experience a certain time lapse in the past, we are sure to mend it in the future. This is how human psychology works. We try to leverage on time and cut down extra unproductive activities. This makes us feel that we can undertake the same work in the future in a lesser time span. However, this is not always the case. The completion of work depends upon a number of other activities. But the human brain tries to overlook this fact and move ahead with overestimating judgment.
The Consequences of the Fallacy
The planning fallacy has dangerous outcomes. One important reason for which planning is done is to assess the time required for a project. But when the concept of planning fallacies comes into play, the plan is set to fail. If the time estimation is faulty, everything falls apart. The most important concept related to the consequences of this fallacy is the time value of money. Money has a time value. It appreciates as time passes. A hundred dollars now won’t be the same as a hundred dollars after four months. This is the major consequence of a planning fallacy. As time passes, we lose money due to the increasing value of money. The cost of capital increases and we fall back on losses. Apart from that, time affects every other task and hence ruins the entire plan.
Conclusion
The planning fallacy is a real-life phenomenon. The consequence of the planning fallacy is great and significant. Hence while making a plan, it is important to not be biased at all. We should accept that fact and not overestimate our abilities. This will save us the trouble of landing into complete failure and losses. This prejudice can rupture all the success you have earned thus far.
