Individuals Exhibit the Planning Fallacy for Time But Not for Money

21 Pages Posted: 22 Aug 2009 Last revised: 30 Jan 2013

Stephen A. Spiller

University of California, Los Angeles (UCLA) - Anderson School of Management

John G. Lynch Jr.

University of Colorado-Boulder, Leeds School of Business - Center for Research on Consumer Financial Decision Making

Date Written: February 20, 2010

Abstract

People underestimate how long it takes to complete various projects. Researchers have proposed that this planning fallacy extends to underestimation of money expenditures as well, though empirical work has focused on the planning fallacy for time. In three studies, we find that participants acknowledge smaller, less frequent planning fallacies for money than for time, that participants do not exhibit a planning fallacy for money but do for time, and that this difference between money and time is mediated by resource-specific propensity to plan. Individuals generally plan more for time than for money, and those who plan more for a given resource exhibit a greater planning fallacy. This ironic effect of planning is consistent with the prior literature on “inside” thinking about successful execution of the plan versus “outside” thinking about events external to the plan.

Keywords: planning fallacy

JEL Classification: D1, D84

Suggested Citation

Spiller, Stephen A. and Lynch, John G., Individuals Exhibit the Planning Fallacy for Time But Not for Money (February 20, 2010). Available at SSRN: https://ssrn.com/abstract=1458380 or http://dx.doi.org/10.2139/ssrn.1458380

Stephen A. Spiller (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

John G. Lynch Jr.

University of Colorado-Boulder, Leeds School of Business - Center for Research on Consumer Financial Decision Making ( email )

Leeds School of Business
Boulder, CO 80309-0419
United States
919-971-5201 (Phone)

HOME PAGE: http://www.colorado.edu/business/john-g-lynch-jr

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