This shows a man and smiley emojis.
Plans based on overly optimistic beliefs make for poor decisions and are bound to deliver worse outcomes than would realistic beliefs. Credit: Neuroscience News

Optimism Linked to Poor Decision-Making and Lower Cognitive Skills

Summary: While optimism is often celebrated, a new study reveals that excessive optimism can lead to poor decision-making, particularly in financial matters. The research shows that individuals with high cognitive ability tend to be more realistic and pessimistic in their future expectations, while those with lower cognitive ability lean towards excessive optimism.

This optimistic bias can result in risky financial behaviors, inadequate savings, and poor choices, especially in situations involving uncertainty.

Key Facts:

  1. Excessive optimism is associated with lower cognitive skills, such as verbal fluency, fluid reasoning, numerical reasoning, and memory.
  2. Unrealistic financial expectations driven by excessive optimism can lead to high consumption, debt, and business failures.
  3. Individuals with higher cognitive ability are better at balancing optimism with realism in important decision-making processes.

Source: University of Bath

Optimistic thinking has long been immortalized in self-help books as the key to happiness, good health and longevity but it can also lead to poor decision-making, with particularly serious implications for people’s financial well-being.

Research, published in Personality and Social Psychology Bulletin, from the University of Bath shows that excessive optimism is actually associated with lower cognitive skills such as verbal fluency, fluid reasoning, numerical reasoning, and memory. Whereas those high on cognitive ability tend to be both more realistic and pessimistic in their expectations about the future.

Credit: Neuroscience News

“Forecasting the future with accuracy is difficult and for that reason we might expect those with low cognitive ability to make more errors in judgments, both pessimistic and optimistic. But the results are clear: low cognitive ability leads to more self-flattering biases—people essentially deluding themselves to a degree,” said Dr. Chris Dawson of the University’s School of Management.

“This points to the idea that while humans may be primed by evolution to expect the best, those high on cognitive ability are more able to override this automatic response when it comes to important decisions. Plans based on overly optimistic beliefs make for poor decisions and are bound to deliver worse outcomes than would realistic beliefs,” Dr. Dawson added.

Decisions on major financial issues such as employment, investments or savings, and any choice involving risk and uncertainty, were particularly prone to this effect and posed serious implications for individuals.

“Unrealistically optimistic financial expectations can lead to excessive levels of consumption and debt, as well as insufficient savings. It can also lead to excessive business entries and subsequent failures.

“The chances of starting a successful business are tiny, but optimists always think they have a shot and will start businesses destined to fail,” Dr. Dawson said.

The study, “Looking on the (B)right Side of Life: Cognitive Ability and Miscalibrated Financial Expectations,” took data from a UK survey of over 36,000 households and looked at people’s expectations of their financial well-being and compared them with their actual financial outcomes.

“The research found that those highest on cognitive ability experienced a 22% increase in the probability of “realism” and a 35% decrease in the probability of “extreme optimism.”

“The problem with our being programmed to think positively is that it can adversely affect our quality of decision-making, particularly when we have to make serious decisions. We need to be able to over-ride that and this research shows that people with high cognitive ability manage this better than those with low cognitive ability,” he said.

“Unrealistic optimism is one of the most pervasive human traits and research has shown people consistently underestimate the negative and accentuate the positive. The concept of ‘positive thinking’ is almost unquestioningly embedded in our culture—and it would be healthy to revisit that belief,” Dr. Dawson added.

About this cognition and decision-making research news

Author: Chris Dawson
Source: University of Bath
Contact: Chris Dawson – University of Bath
Image: The image is credited to Neuroscience News

Original Research: Open access.
Looking on the (B)right Side of Life: Cognitive Ability and Miscalibrated Financial Expectations” by Chris Dawson. Personality and Social Psychology Bulletin


Looking on the (B)right Side of Life: Cognitive Ability and Miscalibrated Financial Expectations

It is a puzzle why humans tend toward unrealistic optimism, as it can lead to excessively risky behavior and a failure to take precautionary action.

Using data from a large nationally representative U.K. sample (N=36,312), our claim is that optimism bias is partly a consequence of low cognition—as measured by a broad range of cognitive skills, including memory, verbal fluency, fluid reasoning and numerical reasoning.

We operationalize unrealistic optimism as the difference between a person’s financial expectation and the financial realization that follows, measured annually over a decade.

All else being equal, those highest on cognitive ability experience a 22% (53.2%) increase in the probability of realism (pessimism) and a 34.8% reduction in optimism compared with those lowest on cognitive ability.

This suggests that the negative consequences of an excessively optimistic mindset may, in part, be a side product of the true driver, low cognitive ability.

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  1. It would seem that extremes of most kinds are ill-advised. Optimism gives balance to pessimism, as hope gives balance to hopelessness and fear gives balance to fearlessness. It would also seem that the perspective of the beholder will flavor whether the trait at issue is positive or negative. When things are on the down turn, it’s easier to be more negative than positive and when things in our lives are on the up-swing, it’s easier to be more positive than negative. However, don’t we need both to survive, as there will, undoubtedly, be times in our lives when one trait or the other will be more prevalent than the other. BALANCE IS THE KEY. Sadly, many of us are not open to adjusting our perspectives to coincide with the realism of the moment and we end up in despair, financial ruin, or in other unpleasant situations. Let’s be open to being flexible and not being saddled with an inflexible label or ‘pessimistic’ or ‘optimistic’.

  2. Woo! I’m in despair! Tingling with diligence. It’s like I’m teleporting from the rock of the mean to the magma or compost of the mean, it’s such a buoyant sear-positive feeling. Fine single-author paper.

  3. I would pair optimism with wisdom. If it is God’s wisdom then you can’t go down the wrong path.

  4. These comments really show how the world lacks the ability to see nuance.

    There is a difference between:

    Excessive optimism
    Overt optimism
    Positive Realism
    Negative Realism
    Overt pessimism
    Excessive pessimism

    (Probably not the only terms that can be on this spectrum)

    However, being realistic about an issue is often viewed by an overtly optimistic person as being pessimistic.

    As a realist, this attitude gets tiring really fast. Getting the overtly optimistic person to see the challenges in a project clearly, so to overcome them with success, can be like pushing rope. You can’t over come challenges if people aren’t willing to look at them and make plans accordingly.

    A failure to plan is a plan to fail.

    Call me pessimistic, if you will, it’s not new to me. But I’d rather look something in the eye, than pretend it doesn’t exist.

  5. This majority of overly optimistic failings are the result of a declaration bias, whereby confident people likely to be study participants.

    This isn’t a Matrix data breach! The information comprises self-reported representations of positive/negative thinking; and the pool of people likely to participate in studies is missing most of the extreme ends of the spectrum.

    Every person computes a cost/benefit analysis for their free will, will this side-hustle pay well for the trouble it causes? With or without graphs and notes or just their intuition.

  6. This is such stupidity. Wtf are we supposed to do then? Be doom and gloom assholes with bad attitudes? Live life as miserably as possible? 😒

    1. Perhaps try somewhere in between?
      As someone who has had shitty life up till now I have an intense dislike of people going around telling people like myself to “look on the bright side” Something that is easy for people who have had an average life leaning towards a normal upbringing and good home life in a stable family setting.

      On the other end of the scale was my mother for whom there was doom and gloom around every corner….and she was someone who had a great childhood, spoiled rotten by parents and never wanted for anything; yet, I was the one who lived life as if the world might end tomorrow, so live for today, that is, when I was able to shut out my past, and wasn’t crippled by C-PTSD and depression.
      Because so much of life was stolen from me that I believed I have so much living to do, so much to experience, but I could never outrun the effects of the lost years.
      So, I can’t stand the perpetual smilers when they tell me to be positive, but I can’t stand the negative nellies either.

      There are people who are deeply unhappy because of what people do to other people, they suffer the anguish of others who suffer at the hands of another, and there are those who turn a blind eye to it all and live life in blissful ignorance….which is actually sad.
      Be happy, but feel the pain, it actually enhances the positive experiences.

      1. As a sustainable homesteader, we have invested ourselves completely into living a path we feel integral as well as staying prepared for the next necessary ratcheting down of our gluttonous western society. After this article we cannot tell if we are optimistic or pessimistic. Accepting preparing for and celebrating a new global equity no matter its manifestation is pessimistic to those clinging to entitled decadence. Change is thirsted for and equally dismissed. This article presents a wonderful dichotomy of reason that has helped to uncover further levels of personal predjudice and compassionate understanding. Thank you

  7. Fantastic original research by University of Bath. Those people who have hastily negated this research finding has missed the salient point that the researcher continues to advocate optimism as a positive trait but cautions individuals to temper this optimism with much needed realism as the future is fraught with uncertainty and challenges at an unprecedented level. It’s excessive unbridled optimism that jeopardises one’s financial well-bring and a balanced approach calls for a little pessimism.

  8. Generally, excessive or extreme of any behavior should be avoided with one exception: anger. One be be extreme in avoiding anger. Otherwise, we should strive to be balanced in all else.

  9. This is a joke right? Negativity bias is a well researched phenomenon. There is no “hoping for the best has helped us as a species” in fact the opposite expecting the worst is how we’ve survived.

    Saying there is a correlation between people who check their biases and cognitive ability is very different from associating .

  10. I see a glass of water said the realist. It’s not half full, or half empty. It’s simply a glass of water.

    1. But the glass hasn’t been filled to the brim, nor does it have too little, it has just enough to quench someone’s thirst

  11. my head is down right now disheartened by this possible linkage. I dont know how scientific the study is however I am 48 and fit this profile completely. Although I feel generally level headed, I’ve had cognitive issues my whole life most likely due to an early childhood illness mainly affecting executive type skills and yes, including financially. However I wonder to what degree he defines as “rash” decision making,etc. I’m also wondering what other variables were considered in this “study”. I’d like to think I’m a nice positive person because that’s who I am and not purely based on my cognitive aptitude. However I cant deny that there might be an interesting relationship between the two.

  12. I am by no means a specialist, but I am a criminologist. The “desistance” literature, which studies how offenders desist from crime shows that overly optimistic prison releases fare worse than those who are more conscious of the obstacles they will face upon release.

  13. What’s bunch of BS!!!! A true definition of an absolute SNOT!!! Find a better cause like helping the poor instead of looking down on them!! And don’t look for a pat on the back either!! This guy is most likely not a Christian, sign of the times like it says in the Bible, people are rotting to the core and will become completely self centered. One day God will ask you “what have you done for my children?” This persons idea of success is of the devil and I pray anyone involved in this nonsense wakes up!!! Is there nothing more to life than arrogance anymore??? It’s all playing out and all this BS will give way to the meak inheriting the earth. No worries Optimistic ones!! Optimism = FAITH

  14. Funny that, I’ve been suffering severe depression and anxiety my entire life, am extremely non-optimistic about most things but I spend money like it’s burning a hole in my pocket.
    People who suffer from depression illness are the opposite of optimistic but they’re not all millionaires because they’re good with money, they literally don’t care about whether they live or die so what does money have to do with the equation?
    I’ll tell you. It leads to alcohol and drugs and put the pittance you start life with right back into their families’ pockets.
    A leads to B leads to C leads to A.

    This world is a paradox.

    Please stop trying to pin our entire existence on monetary wealth – I was born in 1983 and the whole reason I’m in the mess I’m in is because my government (UK) and subsequently the people were too obsessed with SPENDING money to help THEMSELVES instead of spending it on the mental health of the people who PUT THEM INTO POWER because god forbid WE have any trust or worth in ourselves if we weren’t born into money- why, we might start getting ideas above our “station”.
    You are encouraged, in this “educated” society to be nasty to and or pity or look down upon and it bully people for being born into poverty as a a child, an adult and to teach that to you children. Or if they’re different than you.
    They say it’s changed nowadays – it hasn’t. Just same game, different players.

    This world sickens me.

  15. Well, being pessimistic does help one manage one’s money, it’s undeniable, but also to think that one does not know too much about the ramifications of a situation and to explore it to its fullest. Which does presuppose intelligence. I don’t know why so many of these articles have to be disguised as scientific studies when they could just be arguments.

  16. Yeah right, great propaganda. Well in the real world, its much easier to lean towards pessimism than to have the courage to be optimistic. Whatever you mindset is, there is your outcome. And of failure? Failure is just an invitation to learn, re-strategise and try again. A pessimistic person is more likely to give up and stop trying for their desired outcome while an optimistic person (although they too waver) are far better at picking themselves back up and give it another shot.

    What a piece of shitty garbage this article was. This site has lost all credibility, but well i guess this shoddy content here was a deliberate attempt at increasing traffic. Best of luck selling the site off.

    1. Seems like a weak regurgitation of better behavioral psychology research done 20 years ago by Terrance Odean on basic cognitive biased like overconfidence.

    2. Hey Lira, I know it feels so low to be a pessimist but I truly tell you that much more expectations lead to a reverse in the process because the human mind was created to be the best and yet the sorrounding counts that off because of the competition in them.Although, some bit of optimism is required, just to balance it all.Good luck you.

    3. I don’t think this article is shitty at all. It holds a very valid point about very common experiences. If an opponent holds a loaded gun to your head, you are more likely to dare calling his bluff if you optimistically (and erroneously? believed that the gun wasn’t loaded. Obviously, your opponent will blow your head off if you attacked him. But if you had the cognitive ability to think of possilities such as your opponent having just gulped half a pint of whisky before getting into a fight with you, you are likely to suspect that something is not quite right and therefore not call his bluff. If your optimism leads you to believe you can always try again if you failed, you may not have the chance to live to try again.
      That makes me recognise that one must base optimism on cognitive reasoning in order to increase the chances of actualization

    1. “Unrealistic” and “optimism” are not one in the same. The author does people a disservice in this article by constantly putting those two words together in this piece. Sure, “unrealistic optimism” may lead to foolish decisions. But if you really want to hone your cognitive abilities, realistically address a situation and find a productive, positive way to success. This is a characteristic that separates the sheep from the leaders. How does the author think successful start-ups become “unicorns?” It certainly isn’t by seeing darkness in every challenge.

  17. The researchers compared people’s financial expectations with actual financial outcomes year by year for 10 years. And they measured the people’s cognitive skills. The people of higher cognitive ability turned out to have been more realistic in their financial expectations. Isn’t that what the article says?I agree that the article is badly written, and there’s ambiguity in it. But it doesn’t say the researchers made moral claims about optimism or pessimism.

  18. I am not sure if this is correlative effect, i.e. low cognition = overly optimistic behavior. I mean, anecdotally, stupid people tend to be happier. However, I am not sure that high cognition leads to more pessimistic behavior, but definitely leads to more realistic expectations. There needs to be a larger, deeper, scientific study conducted on this issue. I am not sure I agree with the interpretations from this particular study. Cheers.

  19. Look at all these optimists in the comments upset at being called out on their BS with actual science. Absolutely delicious.

    1. Because the study is baked with high grade bullshit. Most of the pessimists I’ve met are dumb as a rock, petty as hell and delight in other people’s failures.
      Actually sounds a lot like the person who wrote the post I’m responding to.
      Optimists may experience more failures but that’s because they’re the ones to take that experience and try again. And many failures actually result in a selloff, so while some projects may have failed, many of yowe resulted in positive financial outcomes.
      But sure, it’s easier to never try, to never benefit from experience. Many tech advances are direct results of optimistic individuals. If they had given in to personal or advised pessimism we’d probably never have a public Internet.
      Businesses and projects fail for a variety of reasons. Failure due to mismanagement or “excess optimism” generally only account for around 25% of failure while unforseen market changes and other causes account for well over 50% of failures.
      As I said, the report is 98% bovine manure.

    2. You are hilarious lol! I love it!

      Optimist, currently “further” questioning cognition!;-)

  20. This article is a waste with nothing to prove towards the welfare of humanity during the very short life where we got to be happy,loving and critically thinking to make the needed economic,social and scientific advancements for the good of our life and environment. It is not worth spending a second of any body’s time.

  21. Glad the a study was done and validated by stats. That being said, the conclusions support what we all intuitively know in the startup/entrepreneurahip context. Overoptimistic expectations about a business lead to those businesses hitting a wall.

  22. Funny, the article title on the University of Bath website refers specifically to entrepreneurs. Just making a complete guess, I’d hypothesize that it’s a correlated outcome influenced by modern hustle culture, “grind mindset”, mental health disorders, world view, background, education… Maybe even the desire people have to get out from underneath constant, crushing economic shifts, layoffs and a lack of other reasonable options. Optimissim is a survival instinct. If you have nothing else going for you, it may be the only thing reinforcing your existence (excessive or not).

    Of course, to even hope to come anywhere close accurately understanding that, it would need a far larger test group than 36,000 households in only one country. Oh, and great care taken not to post sweeping generalizations about the entire human race in click-bait articles. While still interesting, the article is assumptive and misleading—no care has been taken to protect and inform the average person reading it by way of, at the very least, hinting at the overwhelming lack of variables covered in studies like this. Fast and loose content publication on matters like this probably created the half-baked issue in this article in the first place.

  23. This isn’t a well written research article. Optimism is confused with toxic positivity and pessimism is confused with realism. Excessively optimistic is not being optimistic, it’s taking the extreme. That’s obviously not a good trait, but it’s also dumb to call that optimism. Did they also look at extreme pessimism which basically indicates ‘never try, never fail’ kind of attitude to just-give-up, all-hope-is-lost, better-to-commit-suicide as just pessimism, or realism? No one takes the extreme and suggests it to be the norm. If you’re confused about your definitions, then this compromises your research article. Bias is so strong in this article… there is no effective strategy to apply blinding while collecting data.On top of that, to see someone in research go with terms like ‘right’ side really screams blind faith in your study without even being grounded about limitations of your study. So maybe… Learn some realism. And be grounded. It’s a high cognitive ability after all. And that makes the research paper a picture of contradiction and hypocrisy.
    Rewrite. Reword. Relearn and correct your mistakes. If you are actually scientists. Define your terms and specify the extremes. Talk data points instead of running your mouth.
    Can’t believe this crap is published as research. Why do I break my back assuring myself of the accuracy of my research findings and publishing all of that without assuming absolutes? Cause that is how science is done. Or maybe psychology is just different.

    1. It sounds like this hit a nerve. Overly optimistic people are also very sensitive to criticism. Poor thing.

  24. Your definition of optimism is not accurate.
    Poor cognitive processing & lack of formal operative thinking is what your describing.

    1. Sue, your point of view is totally valid and intriguing all the way ‘til the end of the statement where you used the possessive your instead of the contraction you’re… completely crashes its validity… spelling IS important

  25. I agree with the first comment. Secondly, we all know that psychology is full of godless, egomaniacal airheads who didn’t even know their own name when they came out of their mother’s womb.When I look at these , this is man , again trying to validate what he wants to be true.Its his way of thumbing his nose at those who have a positive outlook on life, and do not conform to the pessimistic, faithless, hopeless perspective if death. They see it this way because they refuse to acknowledge God as King of Kings, the one and only.

    1. And the religious are full of hypocritical,pious, self righteous windbags like yourself. Science has done more to PROVE its theories than religion has ever done to back up it’s fairy tales and contradictions to the answers of life. But please continue believing your imaginary daddy figure in the heavens has all the answers.

    1. Sure. The only reason you know his name is because he’s the richest man in the world and understands how to take risks.

  26. This is such a garbage article. There is a big difference between being an optimist and being an idiot.

      1. Agreed, there is a lot of bias here and it needs to specify they type of optimism as whether a personality trait or impulsive risk taking, which in certain circumstances is necessary! More complex than this study!

  27. I think it’s the other way around. People tend more toward negativity and have to work at positivity. You may fail at businesses several times but if you keep at it you’ll eventually succeed. My life has tended to be a self-fulfilling prophecy in many ways. This article seemed to say the same thing over and over again those with excessive optimism are not as intelligent and tend to have more failures but better to give it a shot than not to try at all and sit on the sidelines. So I highly disagree that more of us are programmed to be positive I see exactly the opposite being true in most cases.

    1. I agree with Kris. If entrepreneurs by definition are more optimistic than most, and only 5 percent of startups flourish, it simply means that only 5 percent of human initiatives are good ideas. But there is no way for an optimist to know if they are in the five percent unless they try. If nobody tried, then we would still be living in the stone age.

  28. The author does not consider faith and or a narcissist personality which I consider equally powerful in changing a personality and or their thought patterns.
    Interesting article but so much more is involved in human personality and decision making.
    Kellie Frazier

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