How Optimism Benefits Investors
Optimism is related to achievement in sports, academics, health, politics, and even investing. Optimists tend to be slightly unrealistic, however, and investors want to rely on realistic predictions. Nonetheless, investors are typically more optimistic about their expectations regarding their own performance than about the performance of others. This turns out to be a good thing! Having high expectations makes you happier, while low ones don’t result in greater happiness even if things go better than anticipated.
The brain learns from the difference between what we predict and what we get. Anticipating success in the markets makes an investor more willing to save and put money towards investments. Plus, having positive expectations for the future reduces the stress and anxiety associated with investing. So even if things don’t go well, the optimistic investor still feels happy about being in the game and has a chance to learn from experience. The pessimist, on the other hand, is unlikely to get the same level of practical benefit.
Optimism benefits investors for the simple reason that if you expect success you are more likely to take the actions necessary to succeed. This 20-mnute video looks at how optimism and pessimism shape your life.
Dr. Tali Sharot studies how motivation and emotion shape human judgment, memory and action. She is the author of The Optimism Bias: A Tour of the Irrationally Positive Brain and is currently a researcher at University College London.