Optimism Bias

Definition and Operationalisation

Optimism bias is a Cognitive Bias where the tendency of an individual to overestimate the likelihood of experiencing positive future events and underestimate the likelihood of experiencing negative future events.

This cognitive phenomenon is a hallmark of a healthy human psyche and is one of the most consistent, prevalent, and robust biases documented in psychology and behavioural economics. Approximately 80 per cent of the population exhibits this bias, which appears consistently across cultures, genders, ethnicities, and age groups.

The bias is operationalised as the difference between an individual’s expectations and the actual outcome. It manifests in various domains, such as the anticipation of professional success, long life, and the talent of one’s children, while simultaneously discounting the probability of divorce, motor vehicle accidents, or serious health problems.

This phenomenon extends to non-human species; experiments involving rats, birds, rhesus monkeys, and pigs have demonstrated that animals can also acquire optimistic or pessimistic biases based on their environment.

Mental and Physical Health Implications

Optimism bias is fundamentally associated with mental health. Healthy individuals tend to see future events through rose-coloured spectacles, a tendency that facilitates exploration and resilience. Mild to moderate positivity biases reduce stress and anxiety by preventing over-activation of the autonomic nervous system and the hypothalamic-pituitary-adrenocortical axis.

Physically, optimists tend to live longer and recover faster from disease. Research indicates that optimists are significantly less likely to die from cardiac arrest and show extended survival times when suffering from cancer or AIDS. This is partly due to the fact that positive beliefs enhance the motivation to engage in health-promoting actions, such as faithful adherence to medication and exercise regimes.

Conversely, the absence of optimism bias is a key symptom of major depressive disorder (MDD). Individuals with depression process information about the self and the future in a maladaptive fashion, often characterised by an absence of a positivity bias or a reversal into a pessimism bias. In MDD, the selective updating mechanism breaks down; patients do not take desirable information into account more than undesirable information. More severely depressed individuals show a more pessimistic updating pattern, which contributes to the maintenance of the disorder.

Impact on Strategic Planning and Infrastructure

In the context of management and public policy, optimism bias contributes to the planning fallacy. This refers to the systematic tendency to underestimate the costs and completion times of planned projects while overestimating their benefits. In major infrastructure development, this leads to a phenomenon described as the survival of the un-fittest. The projects that are made to look best on paper through the underestimation of costs and overestimation of benefits are the most likely to gain approval and funding.

Because these projects are based on artificially inflated benefit-cost ratios, they frequently result in the highest cost overruns and benefit shortfalls in reality. For rail projects, average cost overruns often reach 44.7 per cent, while actual passenger traffic is frequently more than 50 per cent lower than forecasted. This leads to the Pareto Principle-inefficient allocation of resources and significant waste. Examples of such outcomes include the Channel Tunnel and Boston's Big Dig, where initial business cases bore little resemblance to ex-post costs and revenues.

Cultural and Methodological Variations

While optimism bias is considered a human universal, its expression is moderated by culture and measurement methodology. Direct methods of measurement, which involve a single comparison judgment between self and peers, produce similar patterns across the Christian West and Eastern cultures.

In Western cultures, the higher value of the individual, and our individual resposibility to exercise our freewill to the good, and superior distinction often result in higher levels of reported unrealistic optimism.

In Eastern cultures, motivations to maintain social harmony and self-improve may result in more neutral or self-critical comparative judgments.

However, research suggests that when individuals consider themselves knowledgeable in a specific domain, they are more likely to exhibit optimism and a preference for their own judgment regardless of cultural background.