Three reasons why a little extra optimism is a good thing

Cade Massey in Qn:

There is a fairly widely held belief among some researchers that some optimism is good. It’s a little bit like red wine: In moderate amounts, it’s good for you.

There are a number of reasons why it might be good to be optimistically biased. For example, if people are by nature a little too risk-averse, a little optimism helps counterbalance that, gets them to take a few risks they might not otherwise.

Another reason is that there is, in economic-speak, positive utility from having positive expectations, in and of itself. Setting aside any decision making that you do based on the expectations, just consider how it feels to walk through life believing that your favorite football team is going to win this weekend, that your relationship is going to work out, that your financial investments are going to pay off. If you’re thinking things are generally good, you’re going to be happier; if you’re thinking things are bad, you’re going to be unhappy.

Now, that has to be offset against what happens once these things are realized: after the game is over or the investment is complete or the relationship is over. If you have been positively biased all along, then you’re going to be more disappointed in the end than you would have been if you hadn’t been positively biased.

Now, are those two things equal? If those two things are equal, then there’s no net positive to optimism. But here’s something we know to be true: people adapt to bad news much more readily than they expect they will. So it could well be the case that those things are asymmetric. That there’s more utility to be gained or lost ahead of an event than after an event. The disappointment isn’t as big a deal as we think it is. And if that’s the case, it’s nice to have a little optimism because it feels better.

A third reason is that there can be a self-fulfilling nature to positive expectations. If you have positive expectations for somebody, they actually perform better. And if that’s the way the world works, a little positive bias is a good thing.

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