What is unrealistic optimism? Is it problematic?
Unrealistic optimism is the way that people assume that things will work out in their favor. Even when probability indicates otherwise, people usually believe they’re the exception.
Read more about unrealistic optimism and how it affects decisions.
What Is Unrealistic Optimism?
Even when faced with the statistical likelihood of failure or mediocrity, individual humans persist—predictably—in believing themselves the exception to these statistics.
Thaler offers an example from his class in Managerial Decision Making. Before the class begins, Thaler has his students fill out a survey that invites them to predict in which decile their final grade for the course will fall. Even though the students understand that only 10% of the class will be in the top decile and only 50% of the class will be in the top five deciles—these students are MBAs and get the basic math—typically less than 5% of the class believes its grade will fall below the median and more than 50% believes its final grade will fall in the top two deciles!
Examples of this type abound. Ninety percent of drivers believe their driving skills are above-average; 94% of professors at a large university believed they were above-average professors; and most newlyweds believe their chances of divorcing are near zero (even though 50% of marriages end in divorce).
Where unrealistic optimism becomes problematic is, for example, in the areas of personal health. Despite the widely known health risks, smokers tend to believe that they’re less likely to get lung cancer than nonsmokers, and gay men systematically underestimate their likelihood of contracting AIDS.
Example of Prenups
The question of the official institution of marriage notwithstanding, libertarian paternalism offers new ways of looking at the old rules of people’s attachments to each other.
As we learned in Chapter 1, most people know that 50% of marriages end in divorce, yet nearly 0% of newlyweds think theirs will. This unbridled optimism often leads couples to forego prenuptial agreements, which could offer the opportunity for more vulnerable halves of couples to protect themselves.
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- Why subtle changes, like switching the order of two choices, can dramatically change your response
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