Monday, April 16, 2012

Cognitive Defect Responsible For Optimism Identified

Here is a fascinating paper in Nature Neuroscience, "How unrealistic optimism is maintained in the face of reality". From the abstract:

"Unrealistic optimism is a pervasive human trait that influences domains ranging from personal relationships to politics and finance. How people maintain unrealistic optimism, despite frequently encountering information that challenges those biased beliefs, is unknown. We examined this question and found a marked asymmetry in belief updating. Participants updated their beliefs more in response to information that was better than expected than to information that was worse. This selectivity was mediated by a relative failure to code for errors that should reduce optimism. Distinct regions of the prefrontal cortex tracked estimation errors when those called for positive update, both in individuals who scored high and low on trait optimism. However, highly optimistic individuals exhibited reduced tracking of estimation errors that called for negative update in right inferior prefrontal gyrus. These findings indicate that optimism is tied to a selective update failure and diminished neural coding of undesirable information regarding the future."
This was published in October. Now I can tell the permabulls and people who didn't learn from 2008 that there is something literally wrong with their brain.


Stagflationary Mark said...

One wonders if there is a similar cognitive defect for hyperinflationists. It's always just a few months away! ;)

By definition, neither optimism nor pessimism are rational.


4. the doctrine that the existing world is the best of all possible worlds.

That's just messed up.


2. the doctrine that the existing world is the worst of all possible worlds, or that all things naturally tend to evil.

So's that!

CP said...

Yeah, but pessimism seems less irrational.

Plus, we are talking about optimism vs. non-optimism; not pessimism.

The optimists literally fail to consider unpleasant scenarios.

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Stagflationary Mark said...


"Yeah, but pessimism seems less irrational."

Perhaps it is because rational people can prove that the existing world is not the best of all possible worlds. High debt and high unemployment are certainly not found in paradise, lol.

It is more difficult to prove that the existing world is not the worst of all possible worlds though without first proving that humans are done thinking up new ways to destroy each other on a grand scale.

Stagflationary Mark said...

Am I a pessimist for seeing some validity in the Doomsday Clock? Or am I a realist?

As you say, all I really know for sure is that I am not an optimist.

whydibuy said...

Oh, so the optimist who had SP500 funds in 2008 were crazy to hold them untill now when they are even or up slightly?

As opposed to the pessimist who stayed out or worse, shorted stocks in the face of a near 100% retracement of the losses. HHMMMMM.