Planning Fallacy or Hiding Hand: Which Is the Better Explanation?

TL;DR

This paper compares the planning fallacy and Hiding Hand explanations for project performance, concluding the Hiding Hand is rare and the planning fallacy better explains typical project outcomes.

Contribution

It provides empirical evidence that the Hiding Hand occurs in only 20% of projects, challenging its claim as a common explanation and emphasizing the prevalence of the planning fallacy.

Findings

Hiding Hand occurs in 20% of projects

80% of projects do not display Hiding Hand behavior

Planning fallacy and optimism bias better explain typical project outcomes

Abstract

This paper asks and answers the question of whether Kahneman's planning fallacy or Hirschman's Hiding Hand best explain performance in capital investment projects. I agree with my critics that the Hiding Hand exists, i.e., sometimes benefit overruns outweigh cost overruns in project planning and delivery. Specifically, I show this happens in one fifth of projects, based on the best and largest dataset that exists. But that was not the main question I set out to answer. My main question was whether the Hiding Hand is "typical," as claimed by Hirschman. I show this is not the case, with 80 percent of projects not displaying Hiding Hand behavior. Finally, I agree it would be important to better understand the circumstances where the Hiding Hand actually works. However, if you want to understand how projects "typically" work, as Hirschman said he did, then the theories of the planning fallacy, optimism bias, and strategic misrepresentation - according to which cost overruns and benefit shortfalls are the norm - will serve you significantly better than the principle of the Hiding Hand. The latter will lead you astray, because it is a special case instead of a typical one.