Regression to the Tail: Why the Olympics Blow Up

Flyvbjerg, Bent, Alexander Budzier, and Daniel Lunn, forthcoming, "Regression to the Tail: Why the Olympics Blow Up," accepted for publication, Environment and Planning A: Economy and Space.

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See all articles by Bent Flyvbjerg

Bent Flyvbjerg

University of Oxford - Said Business School

Alexander Budzier

University of Oxford - Saïd Business School

Daniel Lunn

University of Oxford - Department of Statistics

Date Written: September 1, 2020

Abstract

The Olympic Games are the largest, highest-profile, and most expensive megaevent hosted by cities and nations. Average sports-related costs of hosting are $12.0 billion. Non-sports-related costs are typically several times that. Every Olympics since 1960 has run over budget, at an average of 172 percent in real terms, the highest overrun on record for any type of megaproject. The paper tests theoretical statistical distributions against empirical data for the costs of the Games, in order to explain the cost risks faced by host cities and nations. It is documented, for the first time, that cost and cost overrun for the Games follow a power-law distribution. Olympic costs are subject to infinite mean and variance, with dire consequences for predictability and planning. We name this phenomenon "regression to the tail": it is only a matter of time until a new extreme event occurs, with an overrun larger than the largest so far, and thus more disruptive and less plannable. The generative mechanism for the Olympic power law is identified as strong convexity prompted by six causal drivers: irreversibility, fixed deadlines, the Blank Check Syndrome, tight coupling, long planning horizons, and an Eternal Beginner Syndrome. The power law explains why the Games are so difficult to plan and manage successfully, and why cities and nations should think twice before bidding to host. Based on the power law, two heuristics are identified for better decision making on hosting. Finally, the paper develops measures for good practice in planning and managing the Games, including how to mitigate the extreme risks of the Olympic power law.

Keywords: Olympic Games, cost; cost overrun; power laws; regression to the tail; financial risk; fragility; convexity; irreversibility; misaligned incen¬tives; tight coupling; Eternal Beginner Syndrome; fat tails; skin-in-the-game; megaevent; megaproject.

Suggested Citation

Flyvbjerg, Bent and Budzier, Alexander and Lunn, Daniel, Regression to the Tail: Why the Olympics Blow Up (September 1, 2020). Flyvbjerg, Bent, Alexander Budzier, and Daniel Lunn, forthcoming, "Regression to the Tail: Why the Olympics Blow Up," accepted for publication, Environment and Planning A: Economy and Space., Available at SSRN: https://ssrn.com/abstract=

Bent Flyvbjerg (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Alexander Budzier

University of Oxford - Saïd Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Daniel Lunn

University of Oxford - Department of Statistics ( email )

1 South Parks Road
Oxford OX1 3TG
United Kingdom

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