Behaviour and policy
Optimism Bias
The systematic tendency to underestimate costs, durations and risks and overestimate benefits when planning projects and policies.
Definition
Optimism bias is the demonstrated, systematic tendency for project appraisers and decision-makers to be overly optimistic — underestimating costs, completion times and risks while overestimating benefits and demand. It is well documented in major infrastructure and public investment projects and distorts appraisal unless explicitly corrected.
References
definition and adjustment methodology
empirical evidence base
Overview
What it means
Megaprojects routinely run over budget and behind schedule; optimism bias is a leading explanation alongside strategic misrepresentation. In sustainability contexts it affects cost estimates for energy technologies, infrastructure transitions and environmental programmes in both directions.
How it is used
Appraisal frameworks such as the UK HM Treasury Green Book require explicit optimism bias adjustments — uplifts to cost and time estimates based on empirical reference-class data — before projects are approved.
Why it matters
Correcting optimism bias makes the economics of sustainable investment credible; uncorrected bias can make risky incumbents look cheap or new clean technologies look unrealistically expensive or cheap, distorting transition choices.
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