Building contractors bidding on a building project often calculate their anticipated costs, add some percentage for profit,

Question:

Building contractors bidding on a building project often calculate their anticipated costs, add some percentage for profit, and then double this number and submit it as a bid. Similar rules of thumb have been reported in other auction arenas. Why do you think such rules of thumb developed? What purpose do they serve? In what ways might the contractors be worse off for using this rule of thumb?