Optimism Bias

The Limbic System
August 23, 2018
The Planning Fallacy
October 9, 2018

When you daydream about your future, what do you imagine?

When we think of the future, we tend to only see the good things. We picture our dream house on a sunny day, our successful business and good times with family and friends.

Behavioural Economists call this the Optimism Bias, which is a tendency to expect only good things to happen in the future. We tend to overplay the likelihood of good things happening to us and underestimate the risk of negative events. This is something that binds us all together and is basic human nature.

I recall seeing a video once of people walking thru Central Park. They were asked to reflect on events that had happened to them in the past, and what events might occur in the future. Good events were written on a yellow note and bad events in green. They were then asked to stick their notes up on to either of two walls – past & future. What happened when you stood back at the end of the day to look at the two walls? The wall to the left, the past, had a mixture of yellow & green labels. But the wall to the right? That was mainly all yellow.

The message? When we establish a set of goals for our future, we should be mindful that we are likely to only think about the good things. We have to make sure that we maintain a balance with our future thoughts – to be mindful that there are a number of pitfalls that can beset us, and plan accordingly.

Realistically imagining the possible downsides as well as the big picture positives helps us better achieve our goals.

The Optimism Bias should not be confused with being an Optimist. That is a separate topic for a different article.

Have you considered possible future downsides and what measures do you have in place to protect you?