Chapter 23: The Outside View
- · e.g. story of author work w. team dev’p curriculum, underest. time req’d to complete, ignore base rate info (i.e. how long other teams took) — three errors: (1) inside view vs. outside view, (2) planning fallacy, plan for best case scenario (3) irrational perseverance, they contin’d w. project even w. base-rate evidence agst it
Drawn to the Inside view
- · the inside view — focus on current, pers’l exper., results in forecast based on WYSIATI — cf. Tom W. exper’t
- · the outside view — baseline predict’n, i.e. the predict’n you make about a case if you know nothing except its categ. —baseline predict’n shd be anchor for further adjus’ts
- · common error —people w. info abt indiv’l case rarely feel need know stats of the categ. to which case belongs
- · inside view almost always prevails
The Planning Fallacy
- · planning fallacy, i.e. plans and forecasts that are
o
close to best-case scenarios,
unrealistic
o
improvable fr. stats of similar
cases
- · many examples — cost of Scottish Parl’t Bldg, cost of kitchen renov’ns, weapons systems, projected no. of passengers on new rail lines
Mitigating the Planning Fallacy
- · reference class forecasting , i.e. the outside view, base rates, for public projects
1.
identify appropr. ref. class (kitchen
renovat’ns, large RR proj’ts , etc.).
2.
get stats of ref. class (e.g. cost
per mile of RR, or % expenditures exceeded budget) — use stats to generate a
baseline predict’n
3.
use specific info about the
case, adjust baseline predict’n, if specific grounds to expect optimistic bias to be stronger/weaker in this
project than in others of same type.
Decisions and Errors
- · theory of decision making: decision makers do not calculate risks properly ß planning fallacy, optimistic bias — (vs. standard econ. theory, risks taken out of “rational” calcul’n of odds)
Failing a Test
- · author at fault for curriculum story (above)
Speaking of the Outside View
- · “He’s taking an inside view. He should forget about his own case and look for what happened in other cases.”
- · “She is the victim of a planning fallacy. She’s assuming a bestcase scenario, but there are too many different ways for the plan to fail, and she cannot foresee them all.”
- · “Suppose you did not know a thing about this particular legal case, only that it involves a malpractice claim by an individual against a surgeon. What would be your baseline predict’n? How many of these cases succeed in court? How many settle? What are the amounts? Is the case we are discussing stronger or weaker than similar claims?”
- · “We are making an additional investment because we do not want to admit failure. This is an instance of the sunk-cost fallacy.”
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