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Unrealistic optimism: still a neglected trait

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  • Coelho, Marta

Abstract

Purpose: Unrealistic optimism is all around us, and it is a well-documented psychological phenomenon. The purpose of this study is to take a critical approach of the main research done in the area and to analyze the important impact that it has in many economic and managerial contexts. We also analyze current trends in terms of entrepreneurship by policy makers. Findings: We show that most people are prone to groundless optimism when faced with economic and managerial decisions and yet economists, managers and policy makers still ignore it or fail to understand its characteristics. Implications: Since the policy and welfare implications of such a (neglected) widespread phenomenon are vast, we challenge the current public policy trend of extending lending to business start-ups, on the grounds that it may create a real road to ruin. Originality/value: A careful analysis of the psychology of over-optimism from an economics and managerial perspective is original and extremely valuable in a world where uncertainty dominates. Methodology/approach: Critical review of the existing literature on unrealistic optimism and its implications for economic and managerial decision making.

Suggested Citation

  • Coelho, Marta, 2010. "Unrealistic optimism: still a neglected trait," LSE Research Online Documents on Economics 29133, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:29133
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    File URL: http://eprints.lse.ac.uk/29133/
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    Citations

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    Cited by:

    1. Hongmin Chen & Fu-Sheng Tsai & Han-Chang Ling, 2018. "Business Area Changes and Entrepreneurial Persistence in Ecology- and Food-Related Industries: Knowledge Heterogeneity and Emotion Perspectives," Sustainability, MDPI, vol. 10(4), pages 1-10, March.
    2. Weinstock, Eyal & Sonsino, Doron, 2014. "Are risk-seekers more optimistic? Non-parametric approach," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 236-251.
    3. Dariusz Dolinski & Wojciech Kulesza & Paweł Muniak & Barbara Dolinska & Ali Derakhshan & Tomasz Grzyb, 2021. "Research on Unrealistic Optimism among HoReCa Workers as a Possible Future Hotspot of Infections," Sustainability, MDPI, vol. 13(22), pages 1-15, November.
    4. Mesly, Olivier, 2023. "Irrational exuberance and deception — Why markets spin out of control," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    5. Evelien Croonen & Hans van Der Bij & Rozenn Perrigot & Assaad El Akremi & Olivier Herrbach, 2022. "Who wants to be a franchisee? Explaining individual intentions to become franchisees," Post-Print hal-03281669, HAL.
    6. Brea, Humberto & Grifell-Tatje, Emili & Orea, Luis, 2012. "Expectations with Unrealistic Optimism: An Empirical Application," Efficiency Series Papers 2012/01, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    7. Balasuriya, Jiayi & Gough, Orla & Vasileva, Kristina, 2014. "Do optimists plan for retirement? A behavioural explanation for non-participation in pension schemes," Economics Letters, Elsevier, vol. 125(3), pages 396-399.
    8. Marie-Noëlle Albert & Marie-Michèle Couture, 2013. "The Support to an Entrepreneur," SAGE Open, , vol. 3(2), pages 21582440134, June.

    More about this item

    Keywords

    Over-optimism; Determinants of over-optimism; Entrepreneurial optimism; Public policy; Lending; ISI;
    All these keywords.

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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