For instance, it is common for many employees to become too optimistic and then invest most of their personal retirement funds within the stocks of the company. Optimism bias leads investors to place large unhedged bets. How Does Optimism Bias Impact Investment Decisions? Hence, anyone can be afflicted by the optimism bias, whereas on the other hand, when it comes to overconfidence bias, only investors who consider themselves to be experts are actually afflicted by the bias. However, when it comes to overconfidence bias, investors are likely to be hopeful of a better result because they believe that they have some expertise which the others do not have. They may attribute this to luck or to a general sense of well being. In the case of optimism bias, the investor is more hopeful that the outcome of the investment will be positive and in their favor. Optimism bias, as well as overconfidence bias, are closely related. Difference Between Optimism Bias and Overconfidence Bias It has been observed that even if such investors are presented with data that contradicts their views, they are simply likely to ignore it. The reality is that they already had a certain feeling and that the rosy forecasts just confirm what they always believed to be true. They are generally not unduly influenced by external situations. It is important to realize the fact that such investors have optimism inbuilt in them.

However, optimism bias inhibits the ability of the investors to do so. A rational investor would make unbiased decisions based on market realities. This is opposed to what the actual situation in the market is. This means that they view the markets from their current financial and emotional situation. Investors who are afflicted with optimism bias often have an internal view of the markets. Since they disassociate themselves from the results of their actions, they often start making reckless decisions. If an investor truly believes that bad things cannot and will not happen to them, then they stop taking precautions. It is easy to see why this kind of thinking can be dangerous. They implicitly believe that such bad things can only happen to others. However, they are often of the opinion that these bad things cannot really happen to them. Investors with optimism bias are aware that bad things can and do happen in the investment market. Optimism bias can be explained better by looking at the investors' core beliefs. In this article, we will have a look at what the optimism bias is as well as how it affects the decisions being made by investors. However, when it comes to financial markets, a healthy dose of skepticism is not only necessary but also recommended by many experts. Optimists often live happier and healthier lives. Our findings illustrate the potency of unjustified optimism and underline the importance of basing economic forecasts upon realistic medium-term prospects.The gist of optimism bias is often expressed by using the popular saying 'rose-tinted glasses.' In real life, it is helpful to be an optimist. The mechanism that transforms over-optimism into a later recession seems to run through higher debt accumulation, both public and private. As a necessary first step, we document that IMF Mission Chiefs tend to systematically differ in their individual degrees of forecast-optimism or caution. To isolate the causal effect of over-optimism we take an instrumental variables approach, where we exploit variation provided by the pseudo-random allocation of IMF Mission Chiefs across countries. We arrive at this conclusion by looking at the medium-run effects of instances of over-optimism or caution in IMF forecasts. Is over-optimism about a country's future growth perspective good for an economy, or does over-optimism also come with costs? In this paper we document that recessions, fiscal problems, as well as Balance of Payment-difficulties are more likely to arise in countries where past growth expectations have been overly optimistic. Transportation Economics in the 21st Century.Training Program in Aging and Health Economics.The Roybal Center for Behavior Change in Health.Retirement and Disability Research Center.Measuring the Clinical and Economic Outcomes Associated with Delivery Systems.Improving Health Outcomes for an Aging Population.

Early Indicators of Later Work Levels, Disease and Death.Conference on Research in Income and Wealth.Boosting Grant Applications from Faculty at MSIs.Productivity, Innovation, and Entrepreneurship.International Finance and Macroeconomics.

Over optimism