Budget

Where infrastructure estimates come up short

Irrational optimism is a key to why infrastructure projects are often estimated to cost less than they actually do, the Wall Street Journal reports.

Federal News Network Staff

October 18, 2010 4:21 pm

< a min read

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.

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