Optimism Bias: What It Means for You and Your Business
Think about your current or upcoming projects as you read about this bias.
The idea behind the optimism bias, also known as the positivity illusion, is that people estimate their odds of a positive outcome in some undertaking as being higher than average but their odds of a negative outcome as being lower than average.
Similar to the superiority bias, which leads people to think that their skills or attributes are better than they really are, the optimism bias leads them to think their future is rosier than it really will be. So they overestimate the likelihood of experiencing good events—longevity, career prospects, or a lifelong marriage— and underestimate the likelihood of bad events—illness, accidents, or unemployment.
According to neuroscientist and researcher Tali Sharot, who gave a TED talk about this bias, not only are 80 percent of us more optimistic than realistic, but we’re also oblivious to that fact.
To illustrate her point, Sharot polled the TED audience about how they perceived themselves in regards to several characteristics and capabilities, including getting along with others, driving ability, how interesting they are, and how honest they are. For each of these, almost all fifteen hundred audience members rated themselves above average. According to Sharot, this is the typical result. Yet we can’t all be above average!
In a Time magazine, Sharot points out that although we might become pessimistic about the state of the world, our optimism about our personal future remains strikingly resilient. In fact, there’s growing evidence that optimism is hardwired into the human brain.
That’s good news in general, but it can spell disaster when your project team, in its optimism, believes it can accomplish more in a given timeframe than is feasible. As Sharot emphasizes, “Overly positive assumptions can lead to disastrous miscalculations.”
Psychologist and Nobel Prize winner Daniel Kahneman reminds us that optimism can slide dangerously into overoptimism. For example, although only 35 percent of small businesses in the United States survive, 81 percent of entrepreneurs surveyed rated their own odds of success of at least 70 percent.
Business executives are no better. When forecasting the outcomes of risky projects, many executives make decisions based on what Kahneman calls delusional optimism, rather than assessing and weighting the potential gains, losses, and probabilities.
In his landmark book Thinking, Fast and Slow, Kahneman says executives
overestimate benefits and underestimate costs. They spin scenarios of success while overlooking the potential for mistakes and miscalculations. As a result, they pursue initiatives that are unlikely to come in on budget or on time or to deliver the expected returns—or even to be completed.
Sounds like something to keep in mind in your own work.