Framework

Checklist of forecasting biases

The question it answers

Before presenting a sales, cost or project timeline forecast, which psychological biases should a manager check for to avoid over-optimism or over-confidence?

Origin
Tversky and Kahneman (1974); Kahneman and Tversky (1979); Lichtenstein and Fischhoff (1977); Buehler, Griffin and Ross (1994); Welch (1992); Flyvbjerg (2006)
Diagram type
Comparison table
Level of analysis
Individual
Topics
Data & analyticsStrategy & leadership
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Diagram

Checklist of forecasting biases

CriterionEffectRemedy
OverconfidenceRanges too narrowWiden intervals; test calibration
AnchoringEstimates stick to the first numberStart from several independent estimates
Planning fallacyCost and time underestimatedReference-class forecasting
HerdingForecasts converge on consensusCollect independent views first
Loss aversionAsymmetric reaction to gains and lossesAgree decision rules in advance

Sources

References

Listed A–Z by author surname, Harvard style. A source with a DOI links to https://doi.org/…; one without links to its page or says plainly that it has no DOI.

  1. Buehler, R., Griffin, D. and Ross, M. (1994) ‘Exploring the 'planning fallacy': why people underestimate their task completion times’, Journal of Personality and Social Psychology, 67(3), pp. 366–381.doi:10.1037/0022-3514.67.3.366Source page
  2. Flyvbjerg, B. (2006) ‘From Nobel Prize to project management: getting risks right’, Project Management Journal, 37(3), pp. 5–15.doi:10.1177/875697280603700302Source page
  3. Kahneman, D. and Tversky, A. (1979) ‘Prospect theory: an analysis of decision under risk’, Econometrica, 47(2), pp. 263–291.doi:10.2307/1914185Source page
  4. Lichtenstein, S. and Fischhoff, B. (1977) ‘Do those who know more also know more about how much they know?’, Organizational Behavior and Human Performance, 20(2), pp. 159–183.doi:10.1016/0030-5073(77)90001-0Source page
  5. Tversky, A. and Kahneman, D. (1974) ‘Judgment under uncertainty: heuristics and biases’, Science, 185(4157), pp. 1124–1131.doi:10.1126/science.185.4157.1124Source page
  6. Welch, I. (1992) ‘Sequential sales, learning, and cascades’, Journal of Finance, 47(2), pp. 695–732.doi:10.1111/j.1540-6261.1992.tb04406.xSource page