TY  - JOUR
AU  - Brunnermeier,Markus K.
AU  - Papakonstantinou,Filippos
AU  - Parker,Jonathan A.
TI  - An Economic Model of the Planning Fallacy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14228
PY  - 2008
Y2  - August 2008
UR  - http://www.nber.org/papers/w14228
L1  - http://www.nber.org/papers/w14228.pdf
N1  - Author contact info:
Markus K. Brunnermeier
Princeton University
Department of Economics
Bendheim Center for Finance
Princeton, NJ 08540
Tel: 609/258-4050
Fax: 609/258-0771
E-Mail: markus@princeton.edu

Filippos Papakonstantinou
Imperial College London
Tanaka Business School, South Kensington Campus
London SW7 2AZ, UK
E-Mail: fpapakon@princeton.edu

Jonathan Parker
Finance Department
Kellogg School of Management
Northwestern University
2001 Sheridan Road
Evanston, IL  60208-2001
Tel: 847/491-4113
Fax: 847/491-5719
E-Mail: Jonathan-Parker@Kellogg.Northwestern.edu
AB  - People tend to underestimate the work involved in completing tasks and consequently finish tasks later than expected or do an inordinate amount of work right before projects are due. We present a theory in which people underpredict and procrastinate because the ex-ante utility benefits of anticipating that a task will be easy to complete outweigh the average ex-post costs of poor planning.  We show that, given a commitment device, people self-impose deadlines that are binding but require less smoothing of work than those chosen by a person with objective beliefs. We test our theory using extant experimental evidence on differences in expectations and behavior. We find that reported beliefs and behavior generally respond as our theory predicts. For example, monetary incentives for accurate prediction ameliorate the planning fallacy while incentives for rapid completion aggravate it.
ER  -