Collective optimism can also lead to large-scale disasters. Over-optimism of a very large number of people about their repayment capacity on mortgages led to the housing bubble and recession in the United States. Irrationality and optimism are at the very heart of any economic bubble. Now a very relevant question is – what is the remedy of irrational optimism? Can we escape from it? A raft of research in psychology and behavioural economics indicate that as individuals we are very ill equipped to handle irrational optimism. Corporations are slightly better off. By putting the right set of processes and safeguards, they may be able reduce or discourage over-optimism. One of my intellectual heroes of our time, Nassim Taleb in this latest book “How to live in a world that we do not understand” underscores this very point of future uncertainty and irrational optimism thereby. He suggests ways to adjust to some humility about how much we understand the world we live in. Thinking small, taking two insurance policies and reminding ourselves morning and evening that we don’t know much about the future and having some discipline and quality control over the decisions we need to make may help cure the irrationality around optimism.
However, let’s not forget that optimism can be a very good thing, contributing towards success and happiness in life. However, in many important areas of our lives we tend to be irrationally optimistic. In times of uncertainty and rapid changes, we should be wary of irrational optimism, be it for ourselves or our organization.