The benefits – and dangers – of optimism

It pays to be an optimist. Upbeat types tend to be in better health. A meta-analysis by Dr Alan Rozanski, a cardiologist, and his co-authors found that optimism was associated with a lower risk of cardiovascular events. They also tend to be resilient. Optimists are likely to see setbacks as temporary and attributable to external circumstances, whereas pessimists regard reverses as a verdict on their own enduring weaknesses.

Optimists are more likely to rise up organisational ladders as well. In a recent paper, Professor Nadine Chochoiek of Munich Business School and her co-authors surveyed founders, bosses and employees in the Netherlands, and found that entrepreneurs and managers are as upbeat as each other. Both are more optimistic than employees.

Causality works both ways. Power itself is a source of optimism. It’s easier to feel better about the future if you have an ability to shape it. One reason why bosses have a more positive attitude towards artificial intelligence than workers is surely that they have more control over what will happen. 

But optimism also propels people onwards and upwards. Optimists are more likely than pessimists to be entrepreneurs. Low expectations of success and a decision to found a business tend not to go together. Nobel prize-winning psychologist Daniel Kahneman described “delusional optimism” as an engine of capitalism.

Confidence, justified or not, is a big part of why people are chosen for bigger jobs within organisations. The standard psychological test for measuring how optimistic or pessimistic people are is a short questionnaire called the Revised Life Orientation Test, which features statements like “If something can go wrong for me, it will”. Would you follow someone who strongly believes that they are cursed?

Optimism can plainly go too far. In an influential paper published in 2007, finance professors Manju Puri and David Robinson of Duke University used the gap between individuals’ own longevity expectations and actuarial assumptions as a proxy for people’s level of optimism. They found that extreme optimists were more likely to smoke than moderate optimists, and to keep a great share of their personal wealth in illiquid assets. 

Within organisations, too, excessive optimism often causes trouble. Unrealistic starting expectations make it more likely that projects will miss budgets and deadlines, for instance. Optimism also makes it less likely that failing projects will be canned; decision-makers have a habit of assuming better outcomes than originally planned to justify ploughing on.

A lot depends on the context. “What could possibly go wrong?” sounds much more worrying on the lips of a pilot than a podcaster. A study by Professor Damiano Silipo of the University of Calabria and his co-authors quantified optimism at American banks by looking at how much money they set aside to cover future loan losses. Optimism prevailed among bankers in the run-up to the 2007-2009 financial crisis. Then, suddenly, it didn’t.

There are plenty of ideas on how to counter optimism bias. Processes can help – in a “pre-mortem”, for example, people deliberately imagine the failure of a proposed initiative and identify the most likely causes. Team composition also matters.

A paper by Professor Ulrike Malmendier of the University of California, Berkeley and her co-authors found that overoptimism on the part of the chief financial officer is more predictive than a cocksure chief executive officer when it comes to a preference for debt over equity. But the same paper found that overconfident CEOs tend to hire overconfident CFOs. If it’s optimists all the way down, you have a problem.

Yet it is also possible to lean too far in the other direction. In his new book, The Four Principles, Mr Adrian Gore, founder of the Discovery Group, a big South African financial services firm, argues that ingrained pessimism is a widespread problem in business.

People are conditioned to look for negative signals, reckons Mr Gore. Explaining why things might go wrong is seen as more sophisticated than believing that things will turn out well. Loss aversion, a strong behavioural bias against giving up what you already have, means that the scales are already tipped against risk-taking.

Mr Gore thinks that the trope of learning from failures is overdone; successes teach you more. Performance appraisals ought to focus on putting people in positions that play to their strengths rather than trying to fix their weaknesses. Pessimism has its place, but it is optimism that makes things happen. © 2026 THE ECONOMIST NEWSPAPER LIMITED. ALL RIGHTS RESERVED.