What is Optimism Bias – Causes & Examples
Published by at July 12th, 2023 , Revised On August 26, 2024
Many are unaware that our tendency to be overly optimistic starts at a very early age. As little kids, we often wonder how enjoyable our adult life would be. We sketch a relatively easy life with zero complications and worries. It can be considered that little children are unaware of the practicality of adult life, which is why they adopt optimism.
However, optimism bias is a powerful cognitive ability that also exists in adults. Optimism results in lessened stress and mental burden. However, it can also prevent us from being cautious and careful, which affects decision-making.
Optimism Bias Definition:
So, what is the meaning of optimism bias? Optimism Bias is a type of cognitive bias defined as the ability of an individual’s brain to overestimate the likelihood of positive events and underestimate the likelihood of negative events in life. We have often heard people say, “Keep your expectations low.” This is because our brain has a natural ability to think unrealistically and develop mistaken positive beliefs.
For instance, parents often have unrealistic expectations of their children to be extraordinarily gifted in studies or some sport. The same happens when we purchase products from a well-known brand. We avoid looking at the ingredients or effects of the product, as we assume that this brand’s products have never affected you in any way before, and they might not happen this time too. Little do we know that these things are not under our control.
To understand optimism bias better, we must learn how and why our brain creates illusions of reality.
Causes Of Optimism Bias – Why Humans Adopt A Blind Spot
Let’s develop a shared understanding of why humans exhibit optimism bias.
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Self-Enhancement:
We only see what we want to see. Self-enhancement can best explain the irrational optimism we adopt throughout our lives. Humans constantly look for situations and scenarios that support our positive emotions. Cultivating optimistic predictions can feel satisfying and release dopamine – the feel-good emotion. This leads us to another cognitive bias called the over confidence bias; where we develop too much confidence in our abilities and luck to satisfy ourselves.
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Perceived Control
People tend to selectively update their beliefs to exercise a sense of control over their lives. This leads to optimism bias, as we make false assumptions about what will happen to us in the future. Prior experience is associated with this, as people who have had positive experiences relating to something in the past are more likely to make optimistic predictions. The greater the perceived control, the greater the optimistic prediction. Also, the need to maintain a social image is also what causes optimism bias, as people attempt to establish an appealing social image, which can be understood as the social desirability bias.
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Ego-Centric Thinking
One reason optimism bias occurs is ego-centric thinking. Individuals assume they possess better knowledge about specific circumstances than others. They fixate on their own viewpoint, which is another cognitive bias known as the egocentric bias. This leads to judgements and decisions that support optimism bias. However, the only complication is that since they have a better understanding of information related to them, they have difficulty understanding the knowledge of others.
Difference Between Optimism Bias And Pessimism Bias.
| Optimism Bias | Pessimism Bias |
|---|---|
| Optimism bias is a cognitive bias that involves expecting too much positivity from any situation. | Pessimism bias is a cognitive bias involving expecting the worst of any situation. |
| This bias is more likely to be adopted by people when they are in a good mood. | This bias is more likely to be adopted when people are in a low or depressive mood. |
| People with an optimism bias are likely to prefer positive experiences and stories. | People exhibiting pessimism bias tend to give importance to negative experiences. |
| Optimism bias can be mitigated by self-reflection, gathering data that contradicts your knowledge, and critically evaluating situations. | Pessimism bias can be avoided by practising gratitude, acknowledging past success, meditating and surrounding yourself with positivity. |
Tips To Avoid Optimism Bias
Optimism bias has created havoc in the lives of many. It prevents us from seeing situations clearly and also affects mental health. If we develop certain expectations, and the reality is opposite to what we wanted, we give up on growth and success. This affects our moral character and willpower as well. Optimism bias exists in relationships as well. We overestimate someone’s care and love for us, which later on proves as a significant setback. So, here are some tips you can follow to avoid optimism bias:
- Gather all information related to the topic or circumstances.
- Conduct self-reflection and critical thinking in decision-making.
- Learn from negative experiences and avoid overconfidence.
- Avoid controlling situations and practice self-safety.
- Evaluate yourself and get rid of any unnecessary biases.
- Lower your expectations and welcome advice from others to get a well-rounded viewpoint.
- Lastly, be objective in everything you do.
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Optimism Bias Examples
Following are some typical examples of how optimism bias occurs in daily life.
Optimism Bias In Health
Back in 2022, CNN reported that a well-known Czech folksinger passed away as a result of Covid-19. Hanna Horka’s tragic death left many grieving. However, her death explains how dangerous optimism bias can be. Hanna intentionally exposed herself to COVID-19 as she was confident that she would not die due to the pandemic, and was also a vocal anti-vaxxer. Optimism bias has resulted in many deaths during COVID-19 as many people were confident that such a disease didn’t exist. A thought process like this inhibits valuable knowledge from reaching people.
Optimism Bias In Climate Change
Climate change is the biggest issue that humans are facing now. With global warming and other environmentally dangerous effects changing weather patterns, climate advocacy has become vital for every country. However, US President Donald Trump claimed climate change was a hoax and has since then made statements that showcase optimism bias when it comes to containing the growing climate change. He has also used inaccurate figures to minimise the threat of climate change. This is a great example of optimism bias in climate change
Optimism Bias In Technology
Nokia exhibits the best example of optimism bias, eventually leading to its downfall. The new entrants, Google and Apple, were seen as low threats by Nokia. They were confident that they would dominate the phone company for a very long time, and failed to assess the future developments in technology. Not only were they not prepared for technological advancement, but they were also certain they would excel in the future as well. Hence, optimism gives us a false sense of control over situations and pushes us to make irrational decisions.
Optimism Bias in Behavioural Finance
The optimism bias, which affects behavioural finance, can cause investors to overestimate the prospective profits of their investments while underestimating the hazards involved.
An investor, for instance, displays optimism bias by significantly investing in a single stock because they are confident in its future success and disregard any potential drawbacks.
Due to this bias, there may need to be more diversification and more risk exposure. Investors risk suffering substantial losses if the stock doesn’t perform as predicted. Optimism bias reminds us of the significance of balancing optimism with a realistic assessment of risks, doing extensive research, and keeping a diverse financial portfolio.
Optimism Bias Psychology
A student’s perception of their academic performance is an example of an optimism bias study.
Let’s imagine students always get mediocre marks on their homework and tests. Despite this, individuals have an optimism bias and think they will perform particularly well on future tests. As a result, they need to set aside more time for studying or looking for further assistance since they believe their inherent qualities would ensure success.
Optimism Bias in Project Management
Optimism bias construction is a common concern that we all have faced at some time in our lives. For example, during the planning phase, project managers and stakeholders may exhibit optimism bias by underestimating the time and resources.
Optimism bias can cause project timelines to be underestimated in project management. Here is an example of optimism bias in project management.
Someone has an optimistic opinion of the productivity and capabilities of the team, which leads to an ambitious project timetable. This bias may result in an inadequate allocation of resources and a failure to take potential delays or impediments into consideration.
Optimism Bias in Estimating
An example of optimism bias in estimating can be seen when a person is asked to estimate the time it will take to complete a task. Let’s say a software developer is given a new programming assignment.
Due to optimism bias, the developer may have a positive outlook and believe that they can complete the task much faster than it actually takes. They may underestimate the complexity of the project and overlook potential challenges. As a result, their estimated completion time may be significantly shorter than the actual time required, leading to delays and potential frustration. You can consult the optimism bias green book to estimate any project’s cost.
Optimism Bias in Behavioural Finance
Optimism bias can affect financial behaviour and investment choices in behavioural finance. Let’s understand optimism bias in behavioural finance with an example.
An investor with an optimism bias can underestimate the hazards involved. They may have a bullish outlook on a certain stock or market, emphasising good news and predictions while downplaying bad news.
This bias will result in an excessive concentration of investments in risky assets, a lack of diversification, or an exaggerated perception of risk.
Optimism Bias Economics
An example of optimism bias in economics can be observed in economic forecasting.
For example, during an economic upswing, there could be an unduly pessimistic view that the growth would go forever without taking into account potential constraints or cyclical tendencies.
This bias might be a factor in asset bubbles, speculative behaviour and resource misallocation by causing erroneous projections.
Frequently Asked Questions
The opposite of optimism bias is pessimism bias. It is a cognitive bias that involves overestimating negative experiences and underestimating the likelihood of positive events or experiences in life.
For example: A girl may be fully prepared for her Maths test, but she may think that she will fail it.
People experience optimism bias due to self-enhancement, perceived personal control and the need to maintain a social image. Moreover, ego-centric thinking is another major cause of optimism bias.
Gather all information related to the topic or circumstances and practise self-reflection to eliminate any unnecessary biases. Avoid overconfidence, lower your expectations and welcome advice from others to achieve a well-rounded viewpoint.
