Optimism Bias

The Optimism Bias in Business

In business we are all ultimately judged by our ability to reach the targets set. However, most of the time those targets are too optimistic, yet we are oblivious to the fact. It’s called the optimism bias. It’s a cognitive illusion that exists in over 80% of us.

We repeatedly overestimate our likelihood of experiencing positive events and underestimate our likelihood to experience negative events. Even when we know the statistics, the vast majority of us believe we are far less likely to suffer from cancer, be in a traffic accident, or divorce our partners than we realistically will be.

We are very optimistic about ourselves, our children, our families, but we’re relatively pessimistic about the future of our government or fellow citizens.

The question we aim to explore in this article is whether the optimism bias is good or bad for business.

We need an element of optimism in our lives. Studies have shown that if we believe we are better than the other person then we are more likely to get that job, or stay married, finish that project.

Some people believe that having low expectations is the secret. If something good happens then it a bonus, but if not then I won’t be disappointed.

However, there is a problem with this theory. Whether you get that promotion or not, it is the people with high expectations that always feel better due to how it changes their interpretation of that event. And when success does come their way those people tend to attribute it to their own traits.

Secondly, the act of anticipation makes us happy. It’s the reason why the majority of people prefer Friday to Sunday, even though they are at work on a Friday. The anticipation of the weekend ahead makes people happier.

An optimistic realist

When it comes to that time at the start of a new project at work and targets for the activity are being discussed it is key to keep an eye out for the optimism bias creeping in as the repercussions further down the line could be huge.

Unrealistic optimism can lead to risky behaviour, to financial collapse, to faulty planning. This was something the government accounted for when estimating the costs and deadlines for the 2012 Olympics.

The key is to become an optimistic realist. It’s important to become aware of the optimism bias that exist within ourselves and others so that we can ensure that at the next board meeting we are not questioning why the target set six months ago has been missed, even though we’ve executed all of the activities we hoped to.

You need to strike a balance between remaining hopeful but also account for our unrealistic optimism.

To quote Tali Sharot, neuroscientist at the Department of Cognitive, Percetual and Brain Sciences at the University College London, when describing a cartoon of penguins jumping from a cliff edge;

If you’re one of these pessimistic penguins up there who just does not believe they can fly, you certainly never will. To make any kind of progress, we need to be able to imagine a different reality, and then we need to believe that that reality is possible. But if you are an extreme optimistic penguin who just jumps down blindly hoping for the best, you might find yourself in a bit of a mess when you hit the ground. But if you’re an optimistic penguin who believes they can fly, but then adjusts a parachute to your back just in case things don’t work out exactly as you had planned, you will soar like an eagle, even if you’re just a penguin.”

Written by James Hay, Social Media Coordinator at Fasthosts Internet Ltd.

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