Wishful Thinking, Prudent Behavior: The Evolutionary Origin of Optimism, Loss Aversion and Disappointment Aversion

26 Pages Posted: 31 Jan 2018

See all articles by Chris Dawson

Chris Dawson

University of Bath

David de Meza

London School of Economics & Political Science (LSE) - Interdisciplinary Institute of Management

Date Written: January 24, 2018

Abstract

Optimism, the tendency to overestimate the likelihood of positive events, is one of the most established psychological “biases”. So too are the apparently counteracting phenomena of loss and disappointment aversion. We propose an evolutionary based reconciliation of these seemingly conflicting biases and test it by looking at gender differences in their prevalence. The starting point is the theory advanced by Robert Trivers that optimism has evolved to more effectively persuade or deceive others. A side effect of optimism is mistaken own decisions and excessively rash behavior. Loss aversion does not affect optimistic beliefs but curtails the inclination to act on them. Disappointment aversion also induces prudence, partly through lowering optimism, a characteristic less useful to women. We find that men are more optimistic than women, both sexes are equally loss averse and women are more disappointment averse than men. This is consistent with gender-specific evolutionary adaptations.

Keywords: Gender; Optimism; Loss Aversion; Disappointment Aversion; Dread Aversion

JEL Classification: D03

Suggested Citation

Dawson, Chris and de Meza, David Emmanuel, Wishful Thinking, Prudent Behavior: The Evolutionary Origin of Optimism, Loss Aversion and Disappointment Aversion (January 24, 2018). Available at SSRN: https://ssrn.com/abstract=3108432 or http://dx.doi.org/10.2139/ssrn.3108432

Chris Dawson (Contact Author)

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

David Emmanuel De Meza

London School of Economics & Political Science (LSE) - Interdisciplinary Institute of Management ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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