Underestimated costs + Overestimated benefits = Project approval

Bent Flyvbjerg has built up a large database with information about costs and benefits of large infrastructure projects. He found, for example, that on rail construction projects, cost overruns are on the average 44.7%, and actual traffic is 51.4% lower than estimated traffic. What explains this? Flyvbjerg writes,

Underestimated costs + Overestimated benefits = Project approval

Using this formula, and thus “showing the project at its best” as one interviewee said above, results in an inverted Darwinism, i.e., the “survival of the unfittest.” It is not the best projects that get implemented, but the projects that look best on paper. And the projects that look best on paper are the projects with the largest cost underestimates and benefit overestimates, other things being equal. But these are the worst, or “unfittest,” projects in the sense that they are the very projects that will encounter most problems during construction and operations in terms of the largest cost overruns, benefit shortfalls, and risks of non-viability. They have been designed like that…

Strategic misrepresentation can be traced to political and organizational pressures, for instance competition for scarce funds or jockeying for position, and it is rational in this sense. If we now define a lie in the conventional fashion as making a statement intended to deceive others …, we see that deliberate misrepresentation of costs and benefits is lying, and we arrive at one of the most basic explanations of lying that exists: Lying pays off, or at least political and economic agents believe it does.

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