Evidence of hardwired optimism – another blow for the rational agent idea?

The other week, research results created headlines both in Sweden and abroad.

A group of researchers based in London and Berlin found that to some extent optimism is hardwired into our mindsets. A majority of us are for instance prone to ignore evidence that the risk for something bad to happen is greater than we thought initially, and at the same time likely boost our expectations when presented to evidence suggesting that chances of success are greater than we assumed.

This information adds to the jigsaw puzzle depicting the human mind that is assembled by psychologists, neuroscientists, sociologists, behavioral economists and others. From an evolutionary perspective, being an optimist could make sense – confidence in the future is perhaps necessary to help us through difficult times.

But what does hardwired human optimism imply in an economic system that is based on the assumption of rational behavior, driven to considerable extent by easily available credits and flawed by various market failures? Could it partly explain subprime lending or hazardous speculation in financial markets, along with other elements of “animal spirits” suggested by Akerlof and Shiller? What does it imply when some scientific evidence suggests that we are approaching ecological boundaries for economic activity?

The rational agent hypothesis has been questioned and partly debunked both by researchers from various disciplines and by prominent actors in the financial markets (e g George Soros). The results on optimism again highlight the question how education on economics should handle it.

Alexander Hellquist