The Next Time You're Bullish on a Stock, Just Remember – It's All in Your Head

Scientists think they have found the true source of optimism: it's a brain defect. According to Popular Science, a team from England and Germany decided to examine “how people under-estimated the impact or possibility of future negative events, because this ‘it-can't-happen-to-me' feeling has implications for how people protect themselves.” The team, which was made up of researchers from the Free University of Berlin, the Humboldt University in Berlin, and the Wellcome Trust Centre for Neuroimaging at University College London, provided its participants with a list of 80 negative life events. The events included but were not limited to being fired, being cheated on by a spouse, and getting Alzheimer's disease and dying a miserable death. Researchers then asked each participant how likely they were to experience these events, all the while hearing the facts on their actual probability for experiencing the events. In asking these questions and monitoring brain activity during these tests, scientists learned that people were “far more likely to change their estimates when they learned they were less likely to experience these harms.” “On the other hand,” Popular Science wrote, “when things were worse than expected, the participants still gave the original, incorrect estimate.” According to the researchers, brain activity tracks with these findings. “Our findings suggest that this human propensity toward optimism is facilitated by the brain's failure to code errors in estimation when those call for pessimistic updates,” the researchers wrote. “Any advantage arising out of unrealistic optimism is likely to come at a cost. For example, an unrealistic assessment of financial risk is widely seen as contributing factor to the 2008 global economic collapse. Dismissing undesirable errors in estimation renders us peculiarly susceptible to view the future through rose-colored glasses.” The report isn't available to the general public, but Nature.com is currently selling a digital copy for $32. With or without the full report, one thing is clear: we are all doomed by our own optimism. Follow me @LouisBedigian