26 Pages Posted: 3 Dec 2000
Date Written: October 2000
Successful individuals were frequently found to be overly optimistic. These findings are puzzling, as one could expect that realists would perform best in the long run. We show, however, that in a large class of strategic interactions of either cooperation or competition, the equilibrium payoffs of optimists may be higher than those of realists. This is because the very fact of being optimistic changes the game, and drives the adversary to change her equilibrium behavior, possibly to the benefit of the optimist. Suppose, then, that a population consists initially of individuals with various perceptional tendencies -- pessimists and optimists to various extents, as well as of realists. Individuals meet in pairs to interact, and more successful tendencies proliferate faster. We show that as time goes by, some moderate degree of optimism will take over, and outnumber all other tendencies.
Keywords: Optimism, Evolution of Preferences, Belief Perseverance, Confirmation Bias, Dominance Solvability, Selection Dynamics
JEL Classification: C72, C73
Suggested Citation: Suggested Citation