Optimism Bias Desired

From April Psychological Science:

We asked [383] participants to imagine one of four different settings … [of] decisions about a financial investment, an academic-award application, a surgical procedure, and a dinner party. For each setting, we created eight vignettes [varying] … commitment … agency … and control.  One third … were asked to provide prescriptions … whether it would be best to be overly pessimistic, accurate, or overly optimistic, … another third … to indicate what kind of prediction the protagonist in each vignette would make, and the final third to indicate what kind of prediction they themselves would make. …. Options ranged from -4 (extremely pessimistic) through 0 (accurate) to +4 (extremely optimistic). ….

Overall, the modal prescription was moderately optimistic (+2 on our scale), which was endorsed nearly twice as often as accurate (32.3% vs. 17.7%). .. Participants [said] … that [other] people tend to be optimistically biased … [and] also reported being optimistically biased [themselves]. The degrees of bias participants attributed to other people and to themselves did not differ. … Finally, and most strikingly, … [they said] people should be even more optimistic than they are. …

Participants prescribed (and described) more optimism (a) after commitment to a course of action rather than before (b) when the decision to commit was the protagonist’s to make rather than not, and (c) when the protagonist’s control over the outcome was high rather than low. … The results were also largely robust across the settings we sampled … [and] across key measured variables. Interestingly, even participants who were self-identified as pessimists … prescribed optimism … Although Asian participants prescribed less optimism than any other ethnic group, they still prescribed optimism.

Optimism bias is clearly not an unnoticed accident – people want to be so biased. 

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  • the monster from polaris

    Optimism is a mental disorder.

  • billswift

    Pessimist by policy, optimist by temperament – it is possible to be both. How? By never taking an unnecessary chance and
    minimizing risks you can’t avoid. This permits you to play out the game happily, untroubled by the certainty of the outcome.
    — Robert A Heinlein, The Notebooks of Lazarus Long

    Another thing to think about is that there would be much less crime if criminals were less optimistic.

  • Mason

    Atleast for surgical procedures, and dinner parties, being optimistic about the out-come may imporove the out-come. Is stratigic optimism a bias?

  • http://profile.typekey.com/halfinney/ Hal Finney

    I think one factor in this is that the most successful people often attribute their success to optimism. They achieved their goals in many cases only after repeated failures and setbacks, and it was their fundamental optimism that allowed them to get past that. People see these examples and conclude that an optimistic bias is a prerequisite for success.

    The problem is that this is a selection effect and does not prove that being optimistic increases either your chances of success or your expected total happiness (whichever is your goal). It’s possible that both the greatest successes and the most spectacular failures can be attributed to optimism. Now knzn suggests that optimism bias increases risk taking, and this leads directly to greater expected returns per standard portfolio theory. He also suggests that even if the result is not directly beneficial to optimists, there are positive externalities from their risk taking (I didn’t fully understand this point).

    Further, I think there are studies showing that optimism, even if intentionally adopted and not an inherent attribute, does increase happiness and satisfaction with life, which may be an independent reason to be optimistic.

  • Caledonian

    He also suggests that even if the result is not directly beneficial to optimists, there are positive externalities from their risk taking (I didn’t fully understand this point).

    It’s simple enough: the populace in general derives from value from one popular musical artist than it loses in the failure of ten thousand people who tried to become popular and didn’t manage it.

    From an individual point of view, the expected value of trying to be an artist may be negative, but (so it is argued) society benefits from having all those people take the risk.

  • Doug S.

    Who are you going to hire to manage your money: the guy who says he can give you 15% returns, or the guy who says he can give you 10% returns?

    The hardest lie to detect is one that the liar believes.

  • http://profile.typekey.com/halfinney/ Hal Finney

    Caledonian, that’s not clear about the rare successes. Those 10000 failures do exert costs on society, both in terms of direct costs like unemployment benefits and medical care, and also in terms of lost benefits from other, less ambitious things that they might have been more successful at.

    What knzn said was that the market fails to offer entrepreneurs full diversification of risks, hence there is less than optimal risk-taking, and this bias might compensate for that. This is the part I didn’t understand – it sounds like he’s suggesting that it should be possible to buy failure insurance, but you can’t, hence this discourages people from trying things that might fail.

  • michael vassar

    I wonder if people’s estimates of their own optimism and that of others might be overly high due to optimism bias.

  • Caledonian

    Caledonian, that’s not clear about the rare successes. Those 10000 failures do exert costs on society, both in terms of direct costs like unemployment benefits and medical care, and also in terms of lost benefits from other, less ambitious things that they might have been more successful at.

    1) I’m not saying the argument is correct, I’m merely stating what it is.
    2) Failing at becoming a famous artist doesn’t mean you can’t then succeed at something more likely. There’s an opportunity cost, of course, but it’s not as though they’re total losses.