On the Evolutionary Emergence of Optimism

Abstract

Successful individuals were frequently found to be overly optimistic. This is puzzling because it might be thought that optimistic individuals who consistently overestimate their eventual payoffs will not do as well as realists who see the situation as it truly is and hence will not survive evolutionary pressures. We show that contrary to this intuition, there is a large class of either competitive or cooperative strategic interactions between randomly matched pairs of individuals in the population, in which "cautiously" optimistic individuals not only survive but also prosper and take over the entire population. The reason for this result is that optimistic individuals who overestimate the impact of their actions on their payoffs, behave more aggressively than realists and pessimists. When the interactions between individuals involve negative externalities (the payoff of one player decreases with the actions taken by another player) and the actions are strategic substitutes, being aggressive induces the opponent to be softer, so optimists gain a strategic advantage that, for moderate levels of optimism, outweighs the loss from having the wrong perception of the environment. Likewise, when the interactions between individuals involve positive externalities and the actions are strategic complements, being aggressive triggers a favorable aggressive behavior from the opponent. Hence, in both cases, cautiously optimistic types fare better on average than other types of individuals. We show that if the initial distribution of types is sufficiently wide, then over time it will converge in distribution to a mass point on some level of cautious optimism.