What does this have to do with the price of a cordless keyboard? Our brains’ pre-frontal cortex can lead to misinformation. ?Big time. To improve my understanding of the nature of project estimation and the irrationality in the human mind, I am continuing my research. Some of the books I have listened to in the last few weeks include:
- The Black Swan: The Impact on the Highly Improbable – Nassim Nicholas Taleb
- A Whole New Mind: Why Right Brainers Will Rule the Future – Dan Pink
- How We Decide – Jonah Lehrer
Here’s a sample from the last book that I want to discuss today. MIT economists, led by Dan Ariely, conducted an experiment with business school graduates and then later with executives and managers from the MIT Executive Education Program. It was an auction that featured various products, including wine, a wireless keyboard and chocolate truffles. Before they could bid on miscellaneous items, they had to write down the last two digits of each of their social security numbers. Next, they were asked if they would pay that amount (the 2nd digits of each social security number) for each product. Students then wrote down the maximum amount that they would pay for each item. Results It is obvious that the last two digits of your social insurance number should not have anything to do with the value that you place on random objects. It is possible for someone with two last numbers of 10 to bid on the same item as someone with two last numbers of 90. Here’s an example. The average bid for the cordless keyboard was $56 by those who had social security numbers ending in 80 to 99. Those with social security numbers ending in 1 to 20 were able to bid an average of $16. FOR THE SAME PRODUCT? This phenomenon is known as project estimation in Project Management. I’ve had short-term estimates that were completely wrong turn out to be true recently. This was within 2 weeks of actually doing work. ?WHY? Lack of specific information could be one reason. It can be difficult to determine the “real” effects of a complex software system. Once you get into the details, it is possible to see the details. This anchoring effect is another explanation. Anchoring is more than when you give someone an estimate. It can also come from multiple sources, with or without the knowledge of the project manager. This doesn’t mean that expert opinions are useless for estimation, at least not completely. ?I have been looking at techniques that could be used in order to eliminate anchoring to a large degree. If you have any thoughts on the subject, I would love to hear them.