Why are there often cost overruns for infrastructure projects?
“Explanations range from subtle psychological impulses when numbers are involved, to the economic phenomenon known as the winner’s curse, to outright lying,” The Wall Street Journal reports.
Economists and behavioral scientists say budget excess comes from planners’ irrational optimism.
“Optimism is tremendously inspiring. Accuracy, perhaps not so much,” said Dale Griffin, professor of marketing at the University of British Columbia’s Sauder School of Business, who has studied irrational optimism, according to the article.
The “winner’s curse” explanation points to another reason for keeping cost estimates low: The project will look more attractive to funders.
This story is part of our daily DorobekINSIDER Must Reads. Be sure to check out the full list of stories.