What causes the planning fallacy?

Generally speaking, there are two reasons why the planning fallacy happens. 

First, overconfidence. Overconfidence has been consistently observed among people. In terms of planning, people often make an optimistic estimate on the time and costs needed to finish a project. This is because it is easier to imagine a project goes well, and hard to anticipate all the possible obstacles and difficulties to be encountered along the way. 

Second, strategic misrepresentation by the government (planner). The government has incentives to deliberately underestimate the cost to get the project approved. It is easier to get forgiveness for overspending than permission for starting. Once the project starts, it is hard to stop, and the taxpayers may simply not monitor the eventual costs of the project. This situation is more serious when there are many departments/ministries in the government competing for the budget.