Optimism Bias

A classic study found that more than 90 percent of college professors rate themselves as above-average teachers. And two-thirds believe they’re in the top quarter.

That math just doesn’t work.

I’m not degrading college professors. Similar studies exist for many occupations and life circumstance. The point is we all intrinsically think we are better than we actually are.

We all know our children are above average, we are in perfect health, and anything we do will be successful, no matter what. This is termed optimistic bias.

A recent study shows how financial optimism is both a necessity and the Achilles’ heel of entrepreneurship. Starting a business and having the fate of that business in your hands is a forward-looking action that reflects your optimism.

What’s more, this optimism causes activities that inspire more optimism. Expecting good things to happen can act as a self-fulfilling prophecy—people who believe they will be successful are more likely to be successful. This optimism motivates us to continue to pursue our goals and to chase more activities that inspire even more optimism.

Once an entrepreneur starts a business, he or she becomes engaged in other enterprises that fuel more optimism. Which, ironically, is one of the reasons few entrepreneurs become successful. Despite warning signs and alarms, optimism fuels optimism and the entrepreneur become blind to how their business venture is performing until it is too late to take corrective action.

Being optimist is good for the entrepreneur. Knowing about your personal optimistic bias, however, is even better.

Optimism bias is a human feature about 80% of us have. Here are several ideas on how to manage your optimism bias.

• Be mindful – recognize optimism bias for what it is and call it out when we see it in action.
• Use “designated drivers” – optimism bias could be considered a type of impaired judgment. Select several close associates who won’t either benefit or lose from your decisions and ask them to review your assessment of the situation independently.
• Exploit diversity – diversity in teaming creates strength when it is well leveraged. Create diverse teams and listen to their evaluations of your business planning. Along the way be careful to avoid analysis-paralysis or to indulge in constant questioning and reversing of decisions.
• Establish control limits and obey them – always employ earned value metrics or other management tools to help objectively evaluate the success/failure of all business enterprises.

Our optimism is a double-edged sword. It predisposes us to egotistical overconfidence and foolish risks but enables our greatest and noblest achievements. This is true throughout the Bible.

But worldly optimism is not the same as faith in God. Biblical optimism is the result of faith in the character of God. The Bible refers to this as “hope.” Romans 15:13 says.

“May the God of hope fill you with all joy and peace as you trust in him, so that you may overflow with hope by the power of the Holy Spirit.”

When we hope in God, we put our trust in His sovereign plan above what our circumstances tell us.

Always be optimistic. Optimistic people refuse to worry about things they cannot control, so they are ultimately more enjoyable to work for. But pay attention to your personal optimism bias. Above all, put your hope and trust in God.

[1] U.S. Small Business Administration, 2016