What’s That Got To Do With The Price Of A Cordless Keyboard?

Filed under Estimation | Posted by PMStudent

The pre-frontal cortex of our brains can mislead us. ?Big time. I am continuing my journey into the nature of project estimation and the irrationality of the human mind, in order to get better at it. ?A few of the books I’ve listened to over the past few weeks include:

There is an example from that last book I want to talk about today.

MIT economists led by Dan Ariely did an experiment with their business school graduates , and later on executives and managers at the MIT Executive Education Program.

It was an auction with various products including wine, a wireless keyboard, and chocolate truffles.

Before they bid on miscellanous items, they were asked to write down the last 2 digits of their social security numbers.

Then, they were asked whether or not they would be willing to pay that amount (the last 2 digits of their social security number) for each of the products.

Finally, students wrote down the maximum amount they would be willing to pay for each item.


It’s obvious that the last 2 digits of your social security number should have nothing to do with the value you place on random objects, right? ?Someone with two last digits of 10 and another person with two last digits of 90 might be expected to bid similar amounts on the same item, on average.

Here’s an example of what happened.

For the cordless keyboard, the group who had social security numbers ending between 80 and 99 bid an average of $56. ?Those who had social security numbers ending between 1 and 20 had an average bid of $16.


In Project Management

This phenomenon is reflected in project estimation. ?I’ve recently had short-term estimates turn out to be completely off, and I’m talking about within 2 weeks of actually doing the work. ?WHY?

One explanation could be lack of specific information. ?With a complex interconnected software system it can be difficult to tell what the “real” impacts of something will be until you get in there and start looking at the specifics.

Another explanation is this anchoring effect. ?And anchoring doesn’t just happen when you give someone a number right before they estimate…it can be coming from many sources, with or without your knowledge as the project manager.

I don’t believe this means that expert opinion is useless for estimation; at least not totally. ?I’ve been thinking through some techniques that could be used to eliminate the influence of anchoring to a large extent, and if you have any ideas on the topic I’d love to hear them.