Optimism Bias

What is it?

Optimism bias is the tendency to believe that we personally are less likely than others to experience negative events and more likely to experience positive ones. It is widespread. In a classic 1980 study, Neil Weinstein found that students rated their own chances of good life events as above average and their chances of bad ones as below average. People tend to underestimate their chances of divorce, a car accident, or serious illness, while overestimating their chances of a long life and career success. Brain-imaging studies have linked the bias to how the brain processes imagined future events. Optimism may promote action and persistence; some studies suggest that mildly depressed people make less optimistic and sometimes more accurate predictions, though that finding is debated. The bias still causes real problems: underinsurance, inadequate savings, risky health behaviors, and poor project planning. The planning fallacy is partly driven by optimism bias. In business, it can lead entrepreneurs to underestimate competition and overestimate demand. It can be partly mitigated through reference class forecasting (comparing with statistical base rates), pre-mortem analysis (imagining what could go wrong), and taking the view of a neutral observer who doesn't share your hopes.