Decision Sciences
2 years ago

Bidders' Optimism Bias Leads to Cost Underestimation in Construction Projects.

Journal of Legal Affairs and Dispute Resolution in Engineering and Construction
Optimism Bias in Bidding: Contractors’ Horizontally Biased Estimating Behavior
Young Joo Kim, Mirosław J. Skibniewski

Paper Summary

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The study looked at how construction companies tend to be overly optimistic when estimating costs for projects, leading to underestimation and cost overruns. By analyzing 286 projects in Ohio, it was found that bidders were more optimistic when bidding on longer projects compared to shorter ones. This shows a link between optimism bias and cost underestimation, suggesting the need for better monitoring systems to address this issue.