IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v10y2018i11p3981-d179586.html
   My bibliography  Save this article

Optimism Bias Evaluation and Decision-Making Risk Forecast on Bridge Project Cost Based on Reference Class Forecasting: Evidence from China

Author

Listed:
  • Huimin Liu

    (School of Engineering and Management, Nanjing University, Nanjing 210005, China)

  • Canhui Jiang

    (School of Engineering and Management, Nanjing University, Nanjing 210005, China)

  • Yan Liu

    (Faculty of Civil Engineering and Geosciences, Delft University of Technology, Stevinweg 1, 2628CN Delft, The Netherlands)

  • Marcel Hertogh

    (Faculty of Civil Engineering and Geosciences, Delft University of Technology, Stevinweg 1, 2628CN Delft, The Netherlands)

  • Xue Lyu

    (School of Engineering and Management, Nanjing University, Nanjing 210005, China)

Abstract

The high uncertainty of megaproject results in increasing complexity in the decision-making and ultimately leads to different degrees of cost overrun and project delays. One of the critical reasons for cost overrun and delay is the optimism bias of decision makers. Although the previous literature has analyzed the cost overrun distribution of bridges, roads and other infrastructure projects, there is still a lack of research on how to make more reasonable decisions according to the cost overrun risk and cost-benefit theory by considering the expectation of cost overrun. Therefore, this paper firstly measures optimism bias by conducting the field research and interviews regarding over 30 long bridges in China. On the basis of the optimism bias measure, a decision-making risk model of bridge projects with the expectation of cost overrun has been built. Then the paper takes Hangzhou Bay Bridge as an example to discuss the influence of cost overrun predication, implicit benefits and the project’s operation time on NPV results. Moreover, the probability of project unbuildability risk under different degrees of cost optimism bias has also been discussed. Finally, suggestions for risk forecast are provided for decision-makers to make more objective and comprehensive judgments.

Suggested Citation

  • Huimin Liu & Canhui Jiang & Yan Liu & Marcel Hertogh & Xue Lyu, 2018. "Optimism Bias Evaluation and Decision-Making Risk Forecast on Bridge Project Cost Based on Reference Class Forecasting: Evidence from China," Sustainability, MDPI, vol. 10(11), pages 1-29, October.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:11:p:3981-:d:179586
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/10/11/3981/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/10/11/3981/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Verhoef, Erik T., 2007. "Second-best road pricing through highway franchising," Journal of Urban Economics, Elsevier, vol. 62(2), pages 337-361, September.
    2. Cantarelli, C.C. & van Wee, B. & Molin, E.J.E. & Flyvbjerg, B., 2012. "Different cost performance: different determinants?," Transport Policy, Elsevier, vol. 22(C), pages 88-95.
    3. H. Hanson, Gordon, 2005. "Market potential, increasing returns and geographic concentration," Journal of International Economics, Elsevier, vol. 67(1), pages 1-24, September.
    4. Flyvbjerg, Bent, 2005. "Measuring inaccuracy in travel demand forecasting: methodological considerations regarding ramp up and sampling," Transportation Research Part A: Policy and Practice, Elsevier, vol. 39(6), pages 522-530, July.
    5. Daniel Kahneman & Dan Lovallo, 1993. "Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking," Management Science, INFORMS, vol. 39(1), pages 17-31, January.
    6. Zhaohan Sheng, 2018. "Mega Infrastructure Construction Management," International Series in Operations Research & Management Science, in: Fundamental Theories of Mega Infrastructure Construction Management, chapter 0, pages 13-44, Springer.
    7. Zhaohan Sheng, 2018. "Fundamental Theories of Mega Infrastructure Construction Management," International Series in Operations Research and Management Science, Springer, number 978-3-319-61974-3, December.
    8. Will Jennings, 2012. "Why costs overrun: risk, optimism and uncertainty in budgeting for the London 2012 Olympic Games," Construction Management and Economics, Taylor & Francis Journals, vol. 30(6), pages 455-462, February.
    9. Rouhani, Omid M. & Geddes, R. Richard & Gao, H. Oliver & Bel, Germà, 2016. "Social welfare analysis of investment public–private partnership approaches for transportation projects," Transportation Research Part A: Policy and Practice, Elsevier, vol. 88(C), pages 86-103.
    10. Bent Flyvbjerg & Mette K. Skamris holm & Søren L. Buhl, 2003. "How common and how large are cost overruns in transport infrastructure projects?," Transport Reviews, Taylor & Francis Journals, vol. 23(1), pages 71-88, January.
    11. Benjamin Faber, 2014. "Trade Integration, Market Size, and Industrialization: Evidence from China's National Trunk Highway System," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(3), pages 1046-1070.
    12. Zhaohan Sheng, 2018. "Fundamental Principles Behind the Theory of Mega Infrastructure Construction Management," International Series in Operations Research & Management Science, in: Fundamental Theories of Mega Infrastructure Construction Management, chapter 0, pages 135-183, Springer.
    13. Salling, Kim Bang & Leleur, Steen, 2015. "Accounting for the inaccuracies in demand forecasts and construction cost estimations in transport project evaluation," Transport Policy, Elsevier, vol. 38(C), pages 8-18.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lordan-Perret, Rebecca & Bärenbold, Rebekka & Weigt, Hannes & Rosner, Robert, 2023. "An ex-ante method to verify commercial U.S. nuclear power plant decommissioning cost estimates," Energy Economics, Elsevier, vol. 127(PB).
    2. Coker, Ayodeji Ajibola Alexander, 2021. "Accuracy of in Medias RES and EX-Post Cost-Benefit Analyses: A Case of National Special Programme for Food Security, Nigeria," 2021 Conference, August 17-31, 2021, Virtual 314936, International Association of Agricultural Economists.
    3. Liu, Huimin & Song, Shuang & Hu, Yi & Yan, Xue, 2020. "Monte-Carlo optimization model for dynamic capital structure adjustment in Chinese public-private partnerships under revenue uncertainty," Transportation Research Part A: Policy and Practice, Elsevier, vol. 142(C), pages 115-128.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chantal C. Cantarelli & Bent Flybjerg & Eric J. E. Molin & Bert van Wee, 2013. "Cost overruns in Large-Scale Transportation Infrastructure Projects: Explanations and Their Theoretical Embeddedness," Papers 1307.2176, arXiv.org.
    2. Chong, Uven & Hopkins, Omar, 2016. "An international experience on the evolution of road costs during the project life cycle," Transport Policy, Elsevier, vol. 48(C), pages 60-66.
    3. Cavalieri, Marina & Cristaudo, Rossana & Guccio, Calogero, 2019. "On the magnitude of cost overruns throughout the project life-cycle: An assessment for the Italian transport infrastructure projects," Transport Policy, Elsevier, vol. 79(C), pages 21-36.
    4. Love, Peter E.D. & Ika, Lavagnon A. & Ahiaga-Dagbui, Dominic D., 2019. "On de-bunking ‘fake news’ in a post truth era: Why does the Planning Fallacy explanation for cost overruns fall short?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 126(C), pages 397-408.
    5. Jin, Zhizhou & Zeng, Saixing & Chen, Hongquan & Shi, Jonathan Jingsheng, 2022. "Explaining the expansion performance in technological capability of participants in megaprojects: A configurational approach," Technological Forecasting and Social Change, Elsevier, vol. 181(C).
    6. Yoshifumi Konishi & Akari Ono, 2024. "Do Winners Win More from Transport Megaprojects? Evidence from the Great Seto Bridges in Japan," Keio-IES Discussion Paper Series 2024-003, Institute for Economics Studies, Keio University.
    7. Yang Yang, 2018. "Transport Infrastructure, City Productivity Growth and Sectoral Reallocation: Evidence from China," IMF Working Papers 2018/276, International Monetary Fund.
    8. Vincent van den Berg, 2013. "Over- and Under-Bidding in Tendering," Tinbergen Institute Discussion Papers 13-033/VIII, Tinbergen Institute.
    9. van den Berg, Vincent A.C. & Rouwendal, Jan, 2016. "Tender auctions with existing operators bidding," Economics of Transportation, Elsevier, vol. 6(C), pages 1-10.
    10. Baum-Snow, Nathaniel & Henderson, J. Vernon & Turner, Matthew A. & Zhang, Qinghua & Brandt, Loren, 2020. "Does investment in national highways help or hurt hinterland city growth?," Journal of Urban Economics, Elsevier, vol. 115(C).
    11. Rubina Canesi & Beatrice Gallo, 2023. "Risk Assessment in Sustainable Infrastructure Development Projects: A Tool for Mitigating Cost Overruns," Land, MDPI, vol. 13(1), pages 1-24, December.
    12. Ting Wang & Emmanuel Kingsford Owusu & Qinghua He & Zidan Tian & Dong Wu, 2022. "Empirical Assessments of the Determinants of Construction Megaprojects’ Success: Evidence from China," Sustainability, MDPI, vol. 14(22), pages 1-20, November.
    13. Shahin Shakibaei & Pelin Alpkokin, 2019. "Conflict Resolution in Competitive Liberalized Railway Market: Application of Game Theoretic Concepts," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 22(01), pages 1-21, November.
    14. Petter Osmundsen & Kristin Helen Roll, 2016. "Rig Rates and Drilling Speed: Reinforcing Effects," CESifo Working Paper Series 5895, CESifo.
    15. Abeysekara, Baudhi & Perera, Piyaruwan & Chhipi Shrestha, Gyan Kumar & Gunaruwan, Lalithasiri & Kumarage, Amal & Sadiq, Rehan & Hewage, Kasun, 2021. "Improving the capital deployment efficiency: An infrastructure investment planning process in transportation project," Research in Transportation Economics, Elsevier, vol. 88(C).
    16. Jarosław Górecki & Manuel Díaz-Madroñero, 2020. "Who Risks and Wins?—Simulated Cost Variance in Sustainable Construction Projects," Sustainability, MDPI, vol. 12(8), pages 1-31, April.
    17. Stephen Gibbons & Wenjie Wu, 2017. "Airports, Market Access and Local Economic Performance: Evidence from China," SERC Discussion Papers 0211, Centre for Economic Performance, LSE.
    18. YOO Sunbin & KUMAGAI Junya & KAWASAKI Kohei & HONG Sungwan & ZHANG Bingqi & SHIMAMURA Takuya & MANAGI Shunsuke, 2022. "Double-edged Trains: Economic outcomes and regional disparity of high-speed railways," Discussion papers 22060, Research Institute of Economy, Trade and Industry (RIETI).
    19. Stef Proost & Jacques-François Thisse, 2019. "What Can Be Learned from Spatial Economics?," Journal of Economic Literature, American Economic Association, vol. 57(3), pages 575-643, September.
    20. Claudia N. Berg & Uwe Deichmann & Yishen Liu & Harris Selod, 2017. "Transport Policies and Development," Journal of Development Studies, Taylor & Francis Journals, vol. 53(4), pages 465-480, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:10:y:2018:i:11:p:3981-:d:179586. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.