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

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.