Optimism: The Facts You Need for Life and Business

“Kevin, do you think I can succeed at____________?”
“Kevin, am I wasting my time?”
“Do I have what it takes?”
“Do I seriously have a chance?”

These questions are have been asked of me by people all over the world. Generally speaking, these kinds of questions reveal intelligent concern when someone is crossing into an area or areas of life, where they haven’t been before. They show wisdom. Wisdom can easily seed success. I tend to be wide open to the possibility about this person’s likelihood to succeed.

The general public thinks that optimism or being optimistic is about having a “positive attitude.” That is 100% FALSE.

Does that mean I can be “optimistic” about your chances of success? Can I be pessimistic about your chances of succeeding?

Would it be wise for YOU be optimistic about your own chances of success?!

Optimism is a very misunderstood word and an even more misunderstood concept.

Let’s look at what optimism is commonly thought to be, what it really is and how having optimism as defined by most people could be problematic and how REAL optimism might just make a big difference in your life.

Are You in Control?

Optimism is best thought of as an attitude that encompasses a belief where someone controls their own destiny, performance or results. Adverse events are believed to be “random” and no more or less common for person A than person B. Scientists have learned that optimists blame their own bad results as the fault of others or bad circumstances.

When you look closely, optimistic people tend to believe they control more elements of a situation or part of life than they actually do. This sense of control, real or not, more often than not works to someone’s favor in performance, whether it is in relationships, business, influencing others or pretty much anything.

Obviously there are going to be some drawbacks to such a colored picture of reality.

Most people think about optimism as as having a sunny outlook on the future. They say things like:

“Things will get better.”
“He will do better next time.”
“I’m sure things will go better for you next time.”

People tend to call these behavioral expressions a sign of a “good attitude.” They then mistakenly associate that with optimism.

Optimism is not positive thinking or an ongoing smile that doesn’t crack.

Real optimism begins with an explanatory style of events.

Optimistic people believe that bad events tend to be isolated experiences, temporary, and are overcome by personal initiative and power.

And again from the scientific perspective,The real pessimist doesn’t have a negative attitude. That pessimism is also about explanatory style. The pessimist doesn’t necessarily mean they have a negative attitude. That would be someone who has… a negative attitude…

The pessimist believes that adverse events tend to be ongoing.

The pessimist tends to believe that bad things happen in a broad series of contexts to the individual and they are the individuals fault.

The later factor is quite interesting because optimism and personal responsibility don’t go hand in hand.

Frankly, real optimists tend to believe that the bad stuff that happens in life is not about them, but about the actions of others.

Pessimists tend to blame themselves. You could also say they tend to accept responsibility for adverse events.

And before we go further, we should note that neither real optimism or real pessimism is a “good” or “bad” thing.

The terms describe how people explain their world to themselves and others.

Knowing how people explain things helps you predict what people will do and how they feel inside.

Here are a few real life distinctions between Optimism and Pessimism.

“You yell at me when I’m online too long.” (Optimist)
“You always yell at me.” (Pessimist)

“I’m repulsive.” (Pessimist)
“I’m repulsive to John.” (Optimist)

“I’m drunk.” (Optimist) “I’m stupid.” (Pessimist)

Optimism is not about whether the glass is “half full,” or “half empty.” The glass that is 50% full, is 50% empty. If it was 42% full it would be 58% empty. Optimism is not related to math.

Imagine I tell you that 1/10 of all people are going to end up in the top 10% of all income earners next year. Nothing to awe inspiring there. It’s 100% true and obvious.

When someone who has been in the middle, states they will now be AMONG that 10% is either saying something about their determination or delusion. It’s not an optimistic or pessimistic statement.

Let’s say that YOU would like to be in the top 10% of income earners in the next year. The fact is that it is something you will or won’t do. It is almost always a matter of fact for virtually anyone. If you want it, you can make it happen. If you don’t, it won’t.

People who are quite certain they control their own destiny tend to achieve their desired outcomes more often than those people who believe they are helpless victims in life.

To be sure, there are a number of people who ARE victims in life. Most of these people are not helpless of course. This is why you so often hear great “success stories” come from seemingly unlikely sources. But the fact is many people who have been hurt often tend to fight back, move forward and achieve in spite of their circumstances.

…and THAT is a key take home if you are resonating with this specific notion.

So far so good.

The Overly Optimistic

But what happens to life or the financial life of the “Overly Optimist?”

What does the research show about people who are “overly optimistic?”

Things get interesting when people take real optimism and go way, way overboard. This overwhelming overboard optimism is an idea that has always been disconcertingly sad for me to watch in others. It causes the same feeling as when I observe that “overwhelming pessimism.”

Both overwhelming pessimism and overwhelming optimism are emotional predictions of what is “hopeful” or “not hopeful” as opposed to realistic and probable futures that can be attained.

For example:

“Kevin, I’m going to win the lottery.”

That’s not optimistic. That’s ridiculous.

This “attitude,” will generate failure in many different parts of life all stemming from inaction of any kind, useful or not.

“Kevin, I’ll never win the lottery.”

That is not pessimistic. It’s all but certainly correct.

“Winning the lottery” is 100% outside of the individual’s control and, therefore, to believe that one might even entertain the thought…is going to generate nothing but problems depending on what is riding on the impending “win.”

Most people look at their futures as if they will “win the lottery.”

In the minds of the general public…generally speaking, an optimist has a good or positive view of life and events; and the pessimist has a negative view of life and events.

At their extreme, Optimism and Pessimism are 180 degree polar opposites.

Getting closer to the 90 degree mark is rather ideal for trying to find a frame for experience and life events, but it’s easy to get caught up in the Optimism or Pessimism Frames, through which many other frames are used as lenses as well.

Imagine those two glasses we talked about earlier. What if each had 50% water in the glass?

“The glass is half full.”

“The glass is half empty.”

Exactly. They are both correct. The difference comes only in that they are frames.

When the waiter sees MY glass half empty, I hope HE doesn’t think, “Ah it’s half full, no need for a refill!” I guess I prefer a “pessimistic waiter”.

There is a time and a place for framing objective reality. But there is a time for viewing the world accurately as well.

Recent research has FINALLY teased out the answers to a lot of the “should I be an optimist” questions, or not. What I want to answer today with you is whether you should be optimistic or pessimistic or even overly optimistic about one thing and that is money.

When it comes to money, what should you be: Pessimist? Optimist?

I visit Las Vegas a number of times each year. I love to play cards. Unfortunately the tables sometimes host players who are steeped in superstitions and beliefs about pessimism and optimism that have no basis in reality. Their beliefs at the table tend to mirror their beliefs about life in general. Those defective beliefs about money, thinking, superstition and gut instincts send them home without their money.

You sit down at the blackjack table and you are dealt a 16 and the dealer has a 9. If you don’t take one more card, you can only win if the dealer busts, by having a final total of greater than 21.

The chances of that happening are about 20%.

If you take a card in this scenario, you have about a 25% chance of ending up with the same or higher total than the dealer, either tying or winning.

Now, “optimism” could imply that one would “feel hopeful” that the next card the dealer will randomly give me is A,2,3,4,5.

But really what it means to most is “We can win, I know we can! Don’t take a card, the dealer will break.” This is akin to the saying, “Don’t worry, everything will turn out all right”.

Nothing sets that illusion to rest more than putting your money where your gut instinct is…in other words…it is extremely easy to listen to a conversation and determine whether someone has been responsible for their own income, or not.

The more “extremely optimistic” they are, the fewer days in business they have experienced.

“Pessimism” as the public sees the notion, implies that one would “feel un-hopeful” that one of those 5 of 13 possible cards will come up next.

Hope/un-hope of course have absolutely nothing to do with the result. The card will be whatever it is and all the magic in the world isn’t going to change it when the dealer turns the card from “the shoe” face up.

Optimist or pessimist, you better take a card or you will be sleeping in the car after playing for a couple of hours. In blackjack, there is always a decision which you can calculate right on the spot. That decision is the right and best decision.

Very few people make those calculations but they certainly are there to be calculated. There is no race at a blackjack table. You can take as long as you like to decide on whether you want the next card or not.

As in business, I tend to play very, very quickly as I made almost all of those game decisions years ago. But there are times when the math comes up 50/50 or even 52/48 in your favor by doing something that could easily negatively impact others at the table even though it is the right decision.

This is where the drama of the game comes in. Will my decision be impacted by people I don’t know sitting at the same table?

Perhaps you have paid attention and simply are aware that there are a bunch of little cards left in the deck and not as many big cards.

Your 16 against the dealer’s 9 means you should take a card, but there is intense peer pressure to play the same way that everyone else at the table plays.

Obviously, you’d take a lot more time making the decision if you haven’t done the research, planning, and practice.

Now, here’s the thing: Most players are far too overly optimistic. They make gut level decisions that will cause monetary extraction from their hip pocket. They play based on “gut decisions.”

If you take the card when the dealer has 9 and you have 16 and draw a 10, you lose. Your friends to the right didn’t take a card and they all had 15 or 16 as well. The dealer turns over his hidden card and reveals a 6. The dealer now has 15. Had you not taken the card, the dealer would have gone over 21 and you all the players at the table would have won their bet.

The dealer pulls out the next card and it is a 5. The dealer has 20, everyone loses.

Had you made the wrong decision everyone would have won.

Because you made the right decision everyone lost.

It’s at this point that everyone stops talking to you. They might yell at you!

They were optimistic the dealer would break. You simply did a math problem and did the same thing you’d do every time for the next 20 years.

So should you “be an optimist?” Should you “be a pessimist?” Or, should you do what “the math says,” and make the correct decision?

Which is better in life? Pessimism? Optimism?

And what about in every other decision in life? How do pessimism and optimism effect you and those around you?

Should you be an optimist in “real life?”

Is being an optimist/pessimist a good thing?

What often happens is this:

You often lose when you make the right decision. In fact at the blackjack table as in life, most of the time the right decision ends in you losing!

But the fact is that you calculated the odds and did the only thing you could do from the standpoint of “doing the right thing” or “making the right decision.”

And of course being smart means over the long run you’ll lose less and win more.

I watch overly optimistic people walk away from a table broke because they “play their gut” or “hope…” or you name it.

That said, there are other experiences in life which aren’t so easy to calculate good and bad decisions.

Life isn’t always a Math Problem If a child believes she will get an “A” on a test at school and another child believes she will fail, the research does indeed bear out that the belief influences the result.

The question is what specifically does that mean?!

And the follow up is, “do we really want to skew our kids frame of reality?”

Optimism and Over Optimism

The best work to date is by Martin Seligman. Learned Optimism, as he calls it, is indeed a good thing. His research has shown that when people fail that DON’T take responsibility for the failure (right or wrong), the optimist believes the failure is a strange aberration in the story in life, and that they are successful people so this is not about anything else, because they are good at doing other stuff.

The pessimist, however, sees the failure within themselves, it was their fault, their responsibility (right or wrong). The pessimist believes that it’s about everything they do and these bad things are not going to change in the future.

As you can see, both life views have their obvious problems.

It is a strange thing that occurs when the child believes it was the stupid teacher’s fault that she got an “F” and not her own responsibility; THAT child is more likely to do better the next time around.

Sometimes living with delusions can be a long-term helpful strategy…!

It’s true with many health issues and health in general.

People who are optimists simply live longer than pessimists.

They earn more money than pessimists on the job. They win close games more often than pessimists.

And they have a less realistic view of life than pessimists.

That’s what Seligman has discovered and his research is rock solid.

There is no category for “pragmatist” here…which doesn’t even fall in between, it sort of triangulates away from the continuum.

Optimism and the Mighty Dollar

So when it comes to MONEY, what SHOULD you be?

Optimistic? Pessimistic?

There are all kinds of reasons being optimistic can be helpful, but basically – confidence breeds confidence, and that is a good thing UNTIL the child becomes overconfident,and then it all goes to hell in a hand basket.

People who are optimistic are more likely than others to display prudent financial behaviors, according to research from Duke University’s Fuqua School of Business.

But, too much optimism can be a problem: people who are extremely optimistic tend to have short planning horizons and act in ways that are generally not considered wise.

Manju Puri and David Robinson, professors of finance at Duke, reported in the The Journal of Financial Economics that the differences between optimists and extreme optimists provide important insights into the interaction between psychology and economic and lifestyle choices.

Here’s the danger.

How Did the Study Work?

Puri and Robinson developed a novel method to assess individuals’ levels of optimism, drawing on data from the Federal Reserve Board’s Survey of Consumer Finance (SCF), a triennial assessment of U.S. families’ financial and demographic information.

Although the SCF does not ask about optimism directly, it does ask respondents how long they expect to live.

It also collects demographics, and health-related information– the same sort of information that actuaries use to estimate life expectancy.

Duke researchers combined these data to determine participants’ statistical life expectancies. Then they compared the statistical and self-reported life expectancies and categorized anyone who expected to live longer than the data predicted as an optimist.

“Most of the information we needed was already there, but we had to create a new way of combining it with other existing data in order to extract meaning about optimism,” Puri said.

Puri and Robinson also labeled as “extreme optimists” the top 5 percent of optimists, those who think they will live an average of 20 years longer than is statistically likely.

Optimism indeed relates to a large number of behaviors, they found. In small doses, optimism can lead to wise decision making, but extreme optimists “display financial habits and behavior that are generally not considered prudent,” the authors wrote.

Puri and Robinson find that optimists:

• Work longer hours;
• Invest in individual stocks;
• Save more money;
• Are more likely to pay their credit card balances on time;
• Believe their income will grow over the next five years;
• Plan to retire later (or not at all);
• Are more likely to remarry (if divorced).

In comparison, extreme optimists:

• Work significantly fewer hours;
• Hold a higher proportion of individual stocks in their portfolios, and are more likely to be day traders;
• Save less money;
• Are less likely to pay off their credit card balances on a regular basis;
• Are more likely to smoke.

“The differences between optimists and extreme optimists are remarkable, and suggest that over-optimism, like overconfidence, may in fact lead to behaviors that are unwise,” said Puri.

The findings could lead to useful ways to consider individuals’ investment and career planning decisions, and help people understand or overcome personality characteristics that can negatively affect important financial decisions, the authors say.

“Doctors tell us that one or two glasses of red wine a day can be really healthy,” Robinson said. “But no one tells you to drink the whole bottle. It’s the same with optimism. A little bit is really beneficial, but too much can lead to some really bad economic choices.”

Is there a way to determine the right “level of optimism”?

A Way to Determine the Right Level of Optimism?

A neural network that may generate the human tendency to be optimistic has been identified by researchers at New York University.

As humans, we expect to live longer and be more successful than average, and we underestimate our likelihood of getting a divorce or having cancer.

The results, reported in Nature, link the optimism bias to the same brain regions that show irregularities in depression.

The study was conducted by a team of researchers from the laboratory of NYU Professor Elizabeth Phelps. The lead author is Tali Sharot, now a post-doctoral fellow at University College London.

The NYU researchers used functional magnetic resonance imaging (fMRI) to examine brain function while participants thought of possible future life events (such as “winning an award” or “the end of a romantic relationship”).

“When participants imagined positive future events relative to negative ones, enhanced activation was detected in the rostral anterior cingulate and amygdala, which are the same brain areas that seem to malfunction in depression,” said Sharot.

“Activation of the rostral anterior cingulate was correlated with trait optimism, with more optimistic participants showing greater activity in this region when imagining future positive events.”

The team found that participants were more likely to expect positive events to happen closer in the future than negative events, and to imagine them with greater vividness.

“Our behavioral results suggest that while the past is constrained, the future is open to interpretation, allowing people to distance themselves from possible negative events and move closer toward positive ones,” said Phelps, a professor of psychology and neural science.

“Understanding optimism is critical as optimism has been related to physical and mental health. On the other hand, a pessimistic view is correlated with severity of depression symptoms.”

The brain imaging findings offer a possible mechanism mediating the behaviorally observed optimism bias. The rostral anterior cingulate has previously been shown to be involved in the regulation of emotional responses. The current results suggest that in healthy individuals this region may help integrate and regulate emotional and autobiographical information to generate a positive view of the future.

The research was supported by the National Institutes for Mental Health, the Seaver Foundation, and a Margaret and Herman Sokol Postdoctoral Fellowship.

Adapted from materials provided by New York University.

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