The Principle of the Malevolent Hiding Hand; or, the Planning Fallacy Writ Large

TL;DR

This paper introduces the Malevolent Hiding Hand, a principle where overly optimistic planners underestimate costs and overestimate benefits, revealing that Hirschman's benevolent version is rare and the planning fallacy is widespread.

Contribution

It identifies and documents the Malevolent Hiding Hand as a common phenomenon, contrasting it with Hirschman's rare benevolent version, and highlights its implications for economic decision-making.

Findings

Malevolent Hiding Hand is common in large project samples.

Hirschman's benevolent Hiding Hand is rare.

The planning fallacy is pervasive and significant.

Abstract

We identify and document a new principle of economic behavior: the principle of the Malevolent Hiding Hand. In a famous discussion, Albert Hirschman celebrated the Hiding Hand, which he saw as a benevolent mechanism by which unrealistically optimistic planners embark on unexpectedly challenging plans, only to be rescued by human ingenuity, which they could not anticipate, but which ultimately led to success, principally in the form of unexpectedly high net benefits. Studying eleven projects, Hirschman suggested that the Hiding Hand is a general phenomenon. But the Benevolent Hiding Hand has an evil twin, the Malevolent Hiding Hand, which blinds excessively optimistic planners not only to unexpectedly high costs but also to unexpectedly low net benefits. Studying a much larger sample than Hirschman did, we find that the Malevolent Hiding Hand is common and that the phenomenon that Hirschman identified is rare. This sobering finding suggests that Hirschman's phenomenon is a special case; it attests to the pervasiveness of the planning fallacy, writ very large. One implication involves the continuing need for unbiased cost-benefit analyses and other economic decision support tools; another is that such tools might sometimes prove unreliable.