Optimism Bias

What is it?

Optimism bias is the systematic tendency to believe that we personally are less likely to experience negative events and more likely to experience positive ones compared to others. About 80% of people display this bias. We underestimate our chances of getting divorced, having a car accident, or developing cancer, while overestimating our chances of living long, having talented children, and career success. This bias appears to be neurologically hardwired—brain imaging shows reduced processing of negative information about future outcomes. Evolutionarily, optimism bias may promote action and persistence; depressed individuals often have more accurate (but less adaptive) predictions. However, the bias causes significant problems: underinsurance, inadequate savings, risky health behaviors, and poor project planning. The planning fallacy is partly driven by optimism bias. In business, it leads entrepreneurs to underestimate competition and overestimate demand. Optimism bias is resistant to correction but can be partially mitigated through "reference class forecasting" (comparing to statistical base rates), pre-mortem analysis (imagining what could go wrong), and explicitly considering the perspective of a neutral observer who doesn't share your motivated optimism.