Unrealistic Optimism: Is Everyone Above Average?

This article is an excerpt from the Shortform summary of "Nudge" by Richard H. Thaler and Cass R. Sunstein. Shortform has the world's best summaries of books you should be reading.

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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.

Unrealistic Optimism: Is Everyone Above Average?

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Rina Shah

An avid reader for as long as she can remember, Rina’s love for books began with The Boxcar Children. Her penchant for always having a book nearby has never faded, though her reading tastes have since evolved. Rina reads around 100 books every year, with a fairly even split between fiction and non-fiction. Her favorite genres are memoirs, public health, and locked room mysteries. As an attorney, Rina can’t help analyzing and deconstructing arguments in any book she reads.

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