THE INFLUENCE OF BEHAVIORAL ECONOMICS ON PROJECT MANAGEMENT: A CRITICAL ANALYSIS OF UNCERTAINTY DIAGNOSIS

Abstract

This study investigates the recurring causes of project failure from the perspective of Behavioral Economics, arguing that the root of failure lies not in project execution but in an earlier decision: the misdiagnosis of uncertainty. The objective is to demonstrate that the misalignment between a project's complexity domain and the methodological architecture adopted constitutes a cognitive error of an economic nature rather than a merely operational one. The analysis integrates the theory of cognitive biases—particularly overconfidence, the planning fallacy, and the sunk cost bias—with complexity theory, represented by the Stacey Matrix and the Cynefin framework, as well as with the economic concepts of real options, opportunity cost, and the risk of ruin. To illustrate this proposition, three well-documented historical cases are examined: the expansion of the Panama Canal, the FBI's Sentinel project, and the collapse of Knight Capital. These cases demonstrate that diagnostic error functions as the primary causal mechanism, preceding and shaping the methodological choice while amplifying subsequent tactical biases. The study concludes that uncertainty assessment should be institutionalized as a formal and auditable stage of project diagnosis, shifting the focus of project management from execution to the accurate identification of the nature of the problem.