Cognitive biases & decision-making · law 076
Optimism Bias
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
what it means
People believe they are less likely than others to experience bad outcomes and more likely to experience good ones.
How Optimism Bias works
Most people think they are above-average drivers, and most founders think their business will beat the odds. Optimism fuels entrepreneurship, but it also leads to underestimating risks and costs.
The goal is not pessimism — it is planning that honestly accounts for the base rates of failure.
where it comes from
Psychologist Neil Weinstein documented ‘unrealistic optimism’ in 1980. Neuroscientist Tali Sharot's research and her 2011 book The Optimism Bias brought it wider attention.
Optimism Bias examples in business
Startups
Founders expect profitability in year one while most similar businesses take much longer.
Sales forecasts
Sales teams routinely forecast more deals than they close.
Cash
Owners assume all customers will pay on time and run short of cash.
How to apply it
- 1Check your forecasts against industry base rates.
- 2Build a downside scenario alongside your best case.
- 3Hold cash buffers for when optimism proves wrong.
- 4Ask a sceptical outsider to review your plan.
common misreading
Optimism is not bad — it helps people start things. It needs to be paired with realistic planning.
ask yourself
What would your plan look like if sales came in at half your forecast?
put it into practice
Frequently asked questions
What is Optimism Bias?
People believe they are less likely than others to experience bad outcomes and more likely to experience good ones. Most people think they are above-average drivers, and most founders think their business will beat the odds. Optimism fuels entrepreneurship, but it also leads to underestimating risks and costs.
Who came up with Optimism Bias?
Psychologist Neil Weinstein documented ‘unrealistic optimism’ in 1980. Neuroscientist Tali Sharot's research and her 2011 book The Optimism Bias brought it wider attention.
How do you apply Optimism Bias in business?
1. Check your forecasts against industry base rates. 2. Build a downside scenario alongside your best case. 3. Hold cash buffers for when optimism proves wrong. 4. Ask a sceptical outsider to review your plan.
What is a common misunderstanding of Optimism Bias?
Optimism is not bad — it helps people start things. It needs to be paired with realistic planning.