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Optimism bias
http://www.psychology.uiowa.edu/Faculty/Windschitl/Publications.htm

Optimism bias is an unrealistic positive belief about the future displayed from normal people. This is one of the self-enhancing bias that displayed by most people that they tends to see positive events as more likely for self and negative events as less likely for self. It is one of several kinds of positive illusion to which people are generally susceptible. Psychological research suggests an optimistic bias is introduced in three ways: when people try to inference personal past experience to predict their future vulnerability (Weinstein,1987), when ambiguous risk factors are justified in a biased manner (Weinstein, 1989), when people compare themselves with an incorrect norm (Weinstein, 1989), when people are under conditions of greater certainty(Taylor and Armor, 2002). It is also not limited to any particular age, sex, educational, or occupational group, (Weinstein,1987) and is displayed in a wide variety of events such as overestimate their salary, or more likely to have a gifted child. (Taylor and Brown, 1994; Weinstein, 1980) However, Taylor and Armor (2002) suggest that people do not appear to be indiscriminately optimistic, research study show even when optimistic bias is strong, their predictions tend to be made within reasonable bounds.

Interpretations of optimism bias - why it occurs?
Predicting optimism occurs does not give explain why it occurs. There is a notion that optimistic biases represent attempts to shield ourselves from the fear of being harmed. However, there were no association with the seriousness of the illness with the degree of optimism. (Weinstein,1987)

It is suggested that the reasons of optimistic biases is our desire to be better than other people. People tend to avoid at least some of the consequences of unmet expectation by refusing to see their predictions have been disconfirmed. (i.e. Admitting they are less better than other.)

Some suggest that optimistic bias is produced by simple cognitive errors (for example, if a high-risk individual who have a prevention stereotype it can turn this to a standard for adjustment and conclude incorrectly that their own risk is below average. Excessive inference from the present to the future can also be viewed as incorrect reasoning. This is cognitive error in origin, because we are more likely to be aware of our own efforts to control risks than other’s efforts.), but this is not an adequate explanation because this does not explain why pessimistic biases almost never appear. Other than cognitive error, there is another notion that optimistic is constructed actively, is supported by instances where reasoning is distorted to yield self-serving predictions.

Optimism bias in personal risk perceptions
Optimism bias in personal risk perceptions is important because false belief (i.e. inflated views of self) may downplay the risk of risk-taking behaviour. That is, if people believe they are not susceptible to lung cancer, or less susceptible than others, it may be more difficult to convince them to adopt prudent precautions such as smoking. Researches demonstrated the effect of optimism bias in personal risk perceptions, hence bias the decision making to conduct a risk-taking action. Pellham (1993) show that self-enhanced people were more likely than others to ride motorcycles without wearing helmets. Other examples are: most smokers believe they are less likely than others smokers to developing smoking-related diseases, second-year business school students overestimated their starting salary and the number of job offers they would receive. (Armor and Taylor, 2002)

Optimism bias foster mental health
Taylor and Brown (1988) suggest that optimism bias may promote the capacity for creativity and productivity. They facilitate intellectually creative functioning itself and they enhance motivation, persistence, and performance. Study predicts higher motivation to engage in productive work with stronger optimism bias.

Optimism bias can also make people feel self-fulfilling; they predicted optimism bias is related to positive social relationships. Later, they added, if this bias acted as a personality construct, people will recover faster and have more ability to cope when facing health-related stressors. (Taylor and Brown 1994)

Optimism bias facilitate mood and boots immune system and hence lead to better health. In a study that used 50 college student to investigate the effects of dispositional and situational optimism on mood and immune changes, they found that optimism was associated with better mood, higher numbers of helper T calls, and high natural killer cell cytotoxicity.(Segerstrom, Taylor, Kemeny and Fahey, 1998)

Another good influence of optimism bias to aid coping with stressful events. empirical study (Taylor et al. 1992) revealed an illusory optimism displayed by men who were seropositive for HIV who perceived themselves as less likely to acquiring AIDS than men who were seronegative for HIV. They also found an association between AIDS-specific optimism and psychological adjustment (i.e. For example, reduced fatalistic vulnerability regarding AIDS, with the use of positive attitudes as a coping technique, with the use of personal growth/ helping others as a coping technique, with less use of avoidant coping strategies, and with greater practice of health-promoting behaviour.) In addition, it was related to a lower perceived risk of AIDS and greater feelings of control.

Mechanism
A brain-imaging study found that, when imagining negative future events, signals in the amygdala, an emotion centre of the brain, are weaker than when remembering past negative events. This weakened consideration of possible negative outcomes is one possible mechanism for optimism bias.

Reference
Armor, D. A. and Taylor, S.E. (2002) When Predictions Fail: The Dilemma of Unrealistic Optimism. In Gilovich, Thomas (2002). Heuristics and biases: The psychology of intuitive judgment. Cambridge: Cambridge University Press.

Gollwitzer, P.M., & Kinney, R.F. (1989). Effects of deliberative and implemental mind-sets on illusion of control. Journal of Personality and Social Psychology, 56, 531-542.

Pelham, B.W. (1993). On the highly positive thoughts of the highly depressed. In R. Baumeister (Ed.), Self-esteem: The puzzle of low self-regard (pp. 183-199). New York: Plenum.

Sharot, T., Riccardi,A.M., Raio, C.M., Phelps, E.A. (2007). Neural mechanisms mediating optimism bias. Nature 450, pp.102–015.

Taylor, S.E. and Brown, J.D., (1988). Illusion and Welling-Being: A social psychological perspective on mental health. Psychological Bulletin, 103(2), pp. 193-210

Taylor, S.E. and Brown J.D., (1994) Positive illusions and well-being revisited: Separating fact from fiction Psychological Bulletin, 116(1), pp.21-27

Taylor, S.E., Kemeny, M.E., Aspinwall, L.G., Schneider, S.G., Rodriguez, R, Herbert, M. (1992) Optimism, coping, psychological distress, and high-risk sexual behavior among men at risk for acquired immunodeficiency syndrome (AIDS). Journal of Personality and Social Psychology,63(3), pp. 460-473.

Taylor, S.E., Segerstrom, S.C., Kemeny, M.E., and Fahey, J.L. (1998) Optimism is associated with mood, coping and immune change in response to stress. Journal of Personality and Social Psychology, 74(6), 1646-1655.

Weinstein, N. D. (1980). Unrealistic optimism about future life events. Journal of Personality and Social Psychology, 39 (5), pp 806–820.

Weinstein, N.D. (1987) Unrealistic optimism about susceptibility to health problems: Conclusions from a community-wide sample. Journal of Behavioural Medicine, 10(5), pp.481-500

Weinstein, N.D. (1989) Optimistic biases about personal risks. Science, 246(4935), pp.1232-1233