Optimism Bias Makes the World Go Round

TW: Folks are irrational but thankfully towards the optimistic side. This irrationality feeds entrepreneurism and all sorts of risk-taking that pushes society forward. It also breeds suckers ripe for the taking by various scoundrels. Such is life.

From Business Week:
"The basic idea is that when people judge their chances of experiencing a good outcome—getting a great job or having a successful marriage, healthy kids, or financial security—they estimate their odds to be higher than average. But when they contemplate the probability that something bad will befall them (a heart attack, a divorce, a parking ticket), they estimate their odds to be lower than those of other people.

This optimism bias transcends gender, age, education, and nationality—although it seems to be correlated with the absence of depression. Depressed people tend to show a smaller optimism bias. They also have a more accurate take on reality—perceptions more in line with what actuaries figure to be their real chances of divorcing, suffering a heart attack, and so on.

It is interesting to ponder the utility of over-optimism. It's not a simple matter, because it can both hurt and help us. Individuals often suffer because of an overly bright outlook. They wind up dead, or poor, or bankrupt because they underestimated the downside of taking a certain path. But society as a whole often benefits from behavior spurred by upbeat outlooks.

It's the inverse of "the paradox of thrift," which holds that saving money (instead of consuming) may be good for an individual but is bad for an economy trying to grow.

Overoptimism works the other way. Imagine a society in which no one would take on the risk of creating startups, developing new medications, or opening new businesses. We know most new enterprises fail in the first few years. Yet they crop up all the time, sometimes jump-starting entirely new sectors. A society in which no one is overly optimistic and no one takes too much risk? Such a culture wouldn't advance much..."
http://www.businessweek.com/magazine/content/09_34/b4144048821798.htm?chan=magazine+channel_special+report